There comes a point in the life of a business when it will require some skills or expertise not currently available within the company. At that point, it will need to seek “out” an external “source” to handle the situation. Professional Business Outsourcing is a process where a party engages another party to execute a specific activity. Almost all businesses have at least one outsourced function. The outsourced function is usually not one of the company’s main functions, for example, the main function of a car company is the production of cars. However, they may outsource their marketing functions to a marketing company if they do not have a competent marketing department of their own. The marketing company in this case is a specialised company with staff who have the necessary training, qualification, and experience to handle marketing contracts. These external companies go by the name of third party providers, or simply, service providers.
- Outsourcing is inevitable, and I don’t think it’s necessarily treating people like things. –Stephen Covey
Despite the fact that the concept of outsourcing has been in existence since the beginning of specialisation, companies have only recently started applying this concept to more specific processes, such as billing and payroll. With outsourcing, the execution of these processes became cheaper and more efficient because the service providers have the right human and material resources for the job.
Today, the industry has splintered into various distinct specialised functions for more efficient service delivery. In addition to the demand for these distinct areas of specialisation such as advertising, administration, etc., there are companies that outsource all their operations. Service providers have effectively risen to fill this need.
The global outsourcing industry has continued to grow over the years. In 2014, the industry attained its highest market size ever – $104.6 billion USD in outsourced services. While in 2018, the global market size of outsourced services was valued at $85.6 billion USD according to Statista. This is composed of the Information Technology Outsourcing (ITO) industry with a revenue of $62 billion USD and the Business Process Outsourcing (BPO) industry with $23.6 billion USD.
If you deprive yourself of outsourcing and your competitors do not, you’re putting yourself out of business. – Lee Kuan Yew
BPO’s tend to consists of accounting/finance, virtual legal assistance, marketing, advertising, human resources, claims processing, and call-centre outsourcing functions. These contracts last for several years and are worth millions of dollars. According to 2017 A.T. Kearney Global Services Location Index, the top outsourced countries based on financial attractiveness, people skills and availability, and business environment are India, China, Malaysia, Indonesia, Brazil, Vietnam and Philippines.
Many businesses with limited time and financial restrictions may use a combination of in-house and third party providers (multisourcing), in order to shorten their turnaround time. They engage many outsourcing companies to take charge of virtually all of their processes – sales, marketing, localisation, coding, design, and testing.
The Four Stages of an Outsourcing Process
- Strategic thinking stage:development of the company’s perception about the benefits of outsourcing in its processes.
- Appraisal and selection stage:examination of the company’s outsourcing need, the consideration of several outsourcing approaches, and the selection of an appropriate service provider to execute the project(s).
- Contract drafting stage: set up of a legal framework including the pricing and SLA (service level agreement) components.
- Outsourcing administration and monitoring stage: constant monitoring and fine-tuning of processes and deliverables.
The other part of outsourcing is this: it simply says where the work can be done outside better than it can be done inside, we should do it. – Alphonso Jackson
Three Driving Elements of the Outsourcing Process
- Top-level executive support for the outsourcing project from the client’s company.
- Quality communication to the employees involved in the project.
- The ability of the client to supervise the service providers.
Members of the project team from both the outsourcing service provider’s side and the client’s side must possess certain skills that will promote a good working relationship. These skills include flexibility in times of business changes, project management, communication, negotiation, and a good understanding of contract deliverables and service level agreements (SLAs).
Outsourcing and globalization of manufacturing allows companies to reduce costs, benefits consumers with lower cost goods and services, causes economic expansion that reduces unemployment, and increases productivity and job creation. –Larry Elder