If you’re a business leader considering outsourcing, you may have noticed that there are several different ‘outsourcing terms’ out there. People talk about Business Process Outsourcing (BPO), offshoring, nearshoring, managed IT – often using the terms interchangeably. And, regardless of the exact term they use, they’re generally describing the processes of moving internal operations to a third-party. Organizations can hire experts to manage nearly any business function. Still, areas that bring the biggest return on investment when it comes to outsourcing are accounting, marketing, sales, customer support and support, IT management, shipping and logistics, and much more.
So what are the different types of outsourcing? Do as-a-service models classify as outsourcing arrangements? Are all of these words synonymous? And, what does your business need to know before moving forward with an outsourcing gameplan? Let’s dive into the basics to learn more.
- BPO – Business process outsourcing describes a company contracted to provide services or business processes to another company. Services delivered can include everything from high-touch, front-end services such as customer care or technical support, to accounting and legal.
- Offshoring – In this discussion, two terms that are often confused are outsourcing and offshoring. Offshoring is a type of outsourcing where a company moves its business processes or services to a country outside of its home country. Many companies make this move to get access to the lower-cost labor force, or to access skills they can’t find locally.
- Nearshoring – This practice describes transferring business or services to another country located nearby, often sharing the same border.
- As-a-Service models – Most experts believe that the rise of anything-as-a-service (XaaS) cloud models won’t replace traditional IT outsourcing completely. Still, it will push outsourcers to transform and adapt. Popular as-a-service offerings such as Infrastructure-as-a-Service (IaaS), Platform-as-a-Service, or Software-as-a-Service (SaaS) give companies access to services on a pay-as-you-go model. However, those services are still managed in house, unlike most outsourcing agreements.
- Managed IT services – With outsourcing, a company finds a specialist to provide specific services. Typically outsourced IT services include web development, hosting, technical support or help desk services, or infrastructure support for hardware, software, and networks. On the other hand, managed IT service providers take a much more holistic approach, usually providing several technology services and ensuring the company’s IT environment is running effectively over time. Managed IT services may include a partner that manages software production and maintenance, systems management, data backup and recovery, data storage and management, or network monitoring and security services.
Now that you know the ins and out of outsourcing, what are the common reasons that companies and entrepreneurs turn to outside experts? Let’s review the top benefits.
1. Control costs – By hiring a third-party to manage a business or IT function, companies can lower costs by converting fixed costs into variable costs, meaning businesses only pay for what they need, when they need it.
2. Access to experts – Relying on a company or individual that specializes in a specific area can give an organization access to a particular skill set that can make them more competitive at a lower cost. An outsourcing partner can also provide access to special equipment, or provide industry connections as well.
3. Get up to speed quickly – For startups or other organizations that want to move into a new market or launch a new product, hiring a third-party for help can get the new project moving forward very quickly. In the case of IT services, for example, a quality outsourced IT partner has the resources already on staff to start new projects right away. On the other hand, managing the same project in-house might take weeks or months to hire the right people, and provide training and support.
4. Stay focused – Businesses have limited resources, and every manager only has so much time and attention to give to various priorities across the organization. By working with an outside partner to handle some functions of the business, leaders can stay focused without getting distracted by other critical tasks.
5. Promote growth – The overhead costs of some operations – customer service, web development, sales, and marketing – can be high. Still, business owners need to offer them to satisfy customers, expand their business model, and remain competitive. Outsourcing is a smart alternative for companies that want to grow, but the cost of expanding those operations is cost-prohibitive or would take too long to take effect.
Taking the next step
If your company is considering how outsourcing can help grow your organization, don’t limit yourself to looking at the cost of hiring outside contractors vs. keeping the operations in house. Instead, the most successful leaders focus on the value the contractor or partner’s expertise adds to the company in terms of making them more competitive and attracting customers. If you have questions or want to learn more about the pros and cons of outsourcing, talk to Outsourcive!