For which businesses outsourcing suits?

For which businesses outsourcing suits?

May 19th - 2020

 Small businesses and start-ups are the prime candidates to utilize outsourcing. The most frequently outsourced business processes are accounting, data entry, IT services, customer support, manufacturing, and healthcare. Understandably, small companies cannot afford the dispersion of their valuable human resources to tasks that, although needed and critical, don’t add value to the company, and add more expenses than any profit. Small businesses often outsource their payroll management, billing, storage, etc. – as they have little alternative otherwise. Outsourcing certain activities can generate savings of up to 1/3 in operating costs.

But on the other hand, companies that rely on the trust relationship with their clients, which includes brands that are part of the household for many years and rely on functions that can "interrupt" a product or service flow between an organization and its customers, are typically the riskiest to outsource. For example, delegating ownership of the delivery process to an internet vendor can result in consumers not receiving products promptly. Furthermore, outsourcing the burden of the customer support center can result in consumers being unhappy with the level of competence of the operators when trying to solve technical problems; therefore, damaging the clients’ trust in the capacity of the company to answer their questions.

Nevertheless, small or big companies considering the outsourcing need to consider not only the financial costs of doing the job themselves or letting someone else do it but also whether the task in question is part of their competitive advantage or whether it is central to their ability to make profits. Outsourcing is indeed a topic that companies must address. Circumstances are evolving and the logic of outsourcing a few years back can now be strengthened on in-house management.

 

What guarantees are on the outsourcing market and what you should be careful with?

 

Profit margins will increase

Outsourcing lowers costs, preserves sustainable prices, and increases efficiency.

Outsourcing saves the average employee 69 entire WORKDAYS per year. 

Activities such as meeting scheduling, e-mail tracking, and other simple management activities cost companies a lot of time and money. Studies show that if every company worked together to automate these everyday tasks it could save $5 trillion annually. 

It will eliminate the damaging consequences of lost focus. 

Switching from tabs to processes costs companies 40% of their workforce’s productivity. However, you can focus your staff on a smaller to-do list and work more efficiently with outsourcing support.

It will change the way we look at employee wages. 

The McKinsey report states that 45% of paid activities across industries can be outsourced. This means that businesses can begin to focus on compensating employees for their expertise and skilled labor.

it will allow businesses to sidestep complex or strict regulations.

Freelancers have also employed outsourcing. Owing to the financial arrangements that are based on positions such as these, certain fees and benefits can also be excluded. This is far more cost-effective than recruiting full-time employees.

A higher value will beat out cost savings. 

As the competition rises, businesses are looking to invest in goods and services of greater quality. Retailers known for inexpensive products made in international markets have now outsourced the manufacturing of their high-quality products in their own country.

Outsourcing business operations will be the norm. 

Over the past several years, businesses have adopted the practice of outsourcing more basic activities. Thanks to the digitalization of many jobs, businesses are now able to outsource more niche and limited tasks.

Artificial Intelligence will become commonplace.

Instead of third-party vendors, most manual processes will be outsourced by sophisticated technological tools. For example, Helpshift uses AI to process payments and handle run-of-the-mill information requests. 

Misunderstanding between client and developer. How to fix it? 

Language differences have been described consistently as one of the biggest challenges involved with recruiting a tech outsourcing company.  Mainstream outsourcing companies in East and South Asia built a reputation early on for their cost-savings capabilities. However, that financial benefit comes with a range of issues, with the language barrier being one of the hardest to overcome. This communication barrier can lead to misaligned goals, disappointment on both sides, and a reduction in the quality of goods.

 

There are several potential solutions to solve the dilemma, which is necessary for any outsourcing relationship to continue on the right foot. The best approach to solve the cultural problem is to partner with a tech development firm based in a country where much of their educated community understands the lingua franca and where said language is an integral part of everyday life. Most countries in Latin America, such as Argentina, Colombia, and Mexico adhere to this definition. Additionally, certain nations in Southeast Asia have both the trained population and the everyday English skills needed for effective outsourcing.

 

On the other hand, spending the better part of a year and a great deal of capital on a creative project can be extremely difficult for both parties involved if they only end up disappointed with the finished result. Unclear expectations and a lack of communication early on in the project can lead an outsourcing partner to think they comprehend the objectives and artistic concepts of their company, even though both parties have vastly different project definitions. The only approach to prevent conflicting standards is to carefully study all possible software outsourcing providers, focus on direct and frequent contact from the very beginning of the project, and to set realistic requirements from the beginning. Companies would also need to establish periodic checkpoints in the process and seek reviews to ensure that providers anticipate and account for the project’s needs.

 

The following illustration demonstrates what happens if there is a lack of communication between the provider and the outsourcer:

Source: Total Quality Management, J Oakland, 1989.

 

Conclusion

The unprecedented development of outsourcing relationships raises many questions. What are the activities to outsource? What are the risks of outsourcing? How to keep control over outsourced activities? The research that has been conducted on the subject of outsourcing is primarily concerned with the decision companies must make on whether to entrust the management of an activity to a service provider or to an external supplier. The research does not seem to offer a sufficiently broad vision to the practitioners who manage outsourcing relationships on a daily basis. 

 

Outsourced activities are subcontracted to providers who evolve daily in a competitive market which oblige them to constantly seek competitiveness, quality, and service optimization. In this regard, the client puts aside the rigidity and the routine which often plague internal hierarchical systems. In practice, the client benefits from more dynamic and adaptive contractual collaborations.

 

In conclusion, an outsourcing strategy of some sort is undeniably linked to the strategic management of a company.

 

POTENTIAL ADVANTAGES

POTENTIAL DISADVANTAGES

Decrease in payroll

Customer dissatisfaction

Reduction of operating costs

Cost drift

Gain inefficiency

Quality degradation

Saves time and offers flexibility

Loss of skills

Brings know-how or expertise to the company

 

Allows managers to refocus on key functions