"Do what you do best, outsource the rest."
These words of Peter Druker perfectly describe the ever-growing idea of outsourcing which fundamentally means hiring an external company to perform services for it.
Elucidating it further, what's Outsourcing all about?
Well, it's mainly about delegating specific tasks to entities specializing in them. In order to maintain a competitive edge over others, business owners delegate authority to outsourced specialists when it comes to domains like IT solutions, HR roles, advertising, book-keeping, and many more.
Companies benefit from outsourcing since it lowers operational expenses, allows for flexible staffing, and saves time.
For example, a manufacturer of personal computers might buy internal components for its machines from other companies to save on production costs. In this way, businesses outsource some of their operations and maintain a competitive edge in the market.
Let's illuminate the process, the actual working of the outsourcing process.
1. Define the objectives of outsourcing:
Behind an effective and efficient Outsourcing of services, it becomes imperative to clarify the objectives that a company is looking forward to achieving. Following are the reasons that tend to occur while outsourcing. Some of them are:
Reduce costs
Leverage global skills
Get access to innovations and technologies
Concentrate internal resources in other activities
Mitigate risks
Expand in other areas
Increase the quality of product or service
2. Identify what needs to be outsourced
When considering what to outsource, one must differentiate between the company’s core activities and routine activities.
A company should NEVER outsource its task and processes.
Highlighting some of the activities often outsourced by organizations:
Information Technology
Infrastructure
Security
Customer Care
Maintenance
Telecommunications
Software
Research and Development
Organizational Support
Accounting
Social Media Management
3. Evaluate the costs of Outsourcing:
Being well aware of the fact " NOTHING'S FREE MY FRIEND", an already driven conclusion comes up i.e., THE COST OF OUTSOURCING.
Now big decisions of outsourcing step forward with big basket's cost. A proper analysis has to be done in order to compare the costs with the returns and the dependency over that product being outsourced.
Now looking up to a sub process: -
Time for a Cost Analysis
The undermentioned are the concise steps for performing the cost analysis
Step 1: Defining the process that has to be outsourced.
Step 2: Calculating the cost of in-house working of the process that is being foresaved.
Step 3: Calculating the aggregate cost of outsourcing for the whole term
Step 4: Subtracting the foresaved cost and the actual cost determining the net savings.
4. The CAC (Constraints, Advantages and Challenges) evaluation.
Every successful outsourcing step up with its own bag of constraints. Undermentioned are such hindrances:
environmental problems
legal issues
country standards
labor laws
political issues
technological problems, and so forth.
Also, a thing to be kept in mind while evaluating the constraints is that if the organization and its processes changes on a frequent note, the risk in the outsourcing arrangement is higher and vice-versa depicting a direct relation between the two.
5. Clearly communicate your expectations:
There has to be effective communication within both the internal environment as well as the external environment. When one will clearly let the third parties know what they expect from the outsourcing industry, they might turn out helping them with their own operations.
6. Making the GOLDEN HANDSHAKE
Finalizing the deal with the right partner is the most crucial among all as this could be a game changer for one's organization.
As stated, most offshore arrangements are long-term contracts, striking a business deal with the correct party is crucial. To maintain a long, happy, and beneficial relationship with a supplier, one must offer a deal from which both parties attain value.
Prospective suppliers need to be found and to compare their service levels, costs, and reputation in order to identify the correct supplier for their company.
7. Measuring the performance:
Outsourcing is not a short-term project. If the association remains healthy, the contract period can also be extended. But before extending contracts, one must regularly measure the performance of their offshore operations, find gaps, and establish ways to fill them. Training and Education of employees is very important.
Continuous innovations and upgrades in technology are to be made to avoid missing out on any opportunity that could be grabbed by the first mover advantage.
This might have gotten you a vision of how outsourcing is being done in the actual corporate environment.
Nowadays businesses and outsourcing companies are progressively using AI for the automation of repetitive tasks like calculations or replying to messages.
In addition, AI is assisting companies in enhancing customer service. Examples of frequently used outsourced AI services include chatbots and cloud based IVR (Interactive Voice Response).
There is yet another emerging side of outsourcing which is known as cloud computing-based outsourcing.
Cloud computing is a means of uploading data onto the internet for easy access and to improve software performance. With this, businesses may store their data without maintaining a physical infrastructure, which frees them from having to worry about server rooms, system installations, or system upgrades.
For example, a law firm might store and back up its files using a cloud-computing service provider, thus giving it access to digital technology without having to invest large amounts of money to actually own the technology.
A 2021 Cloudwards survey revealed that the value of cloud computing could be $947.3 billion by 2026.
To conclude, it is anticipated that outsourcing would rise sharply in the coming years.
Companies will need to go outside of their own internal resources in order to find more capable and cost-competitive sources in order to address the business issues. Where outsourcing comes into play—and the various benefits it offers—is in this situation.
By Praveen Paru and Kopal Goyal
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