Business Process Outsourcing has been around for a while. Organisations across the globe have identified functions that can be performed by someone else more efficiently, at a lower cost and without harm to their core business. Outsourcing decision can be driven by multiple different reasons, such as:
- Cost savings
- Lack of in-house capability
- High set-up costs
- High complexity, etc
In the last twenty years, IT industry has lead the outsourcing revolution. Companies like Wipro are global giants servicing business globally. On the individual scale, Elance & Freelancer have brought outsourcing to every small business and individual. Anyone who read 4 Hour Week by Tim Ferris will be well and truly up to speed with the benefits of outsourcing. At xSource, we based our entire business model at providing outsourcing solutions to small & medium businesses in Australia. Our outsourcing criteria approach describes steps we believe business should take before making a decision to outsource their processes to someone else. We see it like this:
- Function has to be non-core. i.e. we would not recommend outsourcing something that provides your business with a competitive advantage.
- Outsourcing will involve risks, but those have to be manageable.
- There has to be clear cost benefits. Larger businesses often make a decision based on ‘staff reduction’ calculations. It often works out that the cost of managing the outsourcing provider is higher than initially thought.
- There is no point outsourcing to someone who will provide service of inferior quality.
If these conditions are fulfilled, outsourcing can assist business in growing exponentially. There are numerous examples of large corporates that have outsourced several functions and then dominated their industry. Apple for example does not produce iPhone in house, they design , market and manage telco distributors in house, but phones are made elsewhere (under close eye of Apple of course). With these arrangements, Apple is now the largest business world-wide. Outsourcing can help sole traders and smaller business grow at much higher pace than by performing non-core tasks in house. For example, by hiring an assistant a finance broker can keep full control over their processes. However, assistant will require training, will be absent on leave and has limited capacity to take new business on board. Assistant is also a fixed cost (unless hired as a casual) and is generally more costly than outsourcing elements of broker’s business to specialists. Even more importantly, using a quality provider (or few of them) can in this case reduce a requirement for employing more brokers and diluting the sales commissions. Our data shows quadruple cost reduction in outsourced scenario compared to in house operation, accompanied with a significant increase in flexibility and output quality. If you wish to find out more about benefits of outsourcing, contact us and we will be happy to assist.