What is Outsourcing & When Should You Do It?

By NE Docs | August 25, 2014

What is Outsourcing & When Should You Do It

The term “outsourcing” is not often associated with positive sentiments. The general conception of outsourcing involves the loss of local jobs in order to obtain a cheaper labor cost outside of the country or region. However, not all outsourcing is the same. Whether it is a call center, a consulting firm, or even a document conversion bureau, outsourcing is a large part of the corporate world and can be used to facilitate business growth and significant cost savings. In order to clear any misconceptions about outsourcing, we will be providing you with an all-inclusive outsourcing definition.

First of all – what is outsourcing? By definition, outsourcing is the contracting of business processes to a third-party. The term was popularized in the turn of the 21st century, as businesses began outsourcing to suppliers outside of the U.S., also known as offshoring. While outsourcing to other countries is one option for those seeking to reduce costs, there are actually 3 different types of outsourcing to consider. Companies must decide which outsourcing option is best for their individual needs – often based upon cost, location, language, and cultural considerations.

Types of Outsourcing

Onshore Outsourcing: Onshore outsourcing occurs when a company outsources their operations to another organization within their country or region. Utilizing onshore outsourcing is a great way to reduce labor costs and benefit from the skilled labor of an external team. With no language barrier to speak of – outsourcing onshore can be a great way to forge partnerships, better allocate your internal resources, and reduce costs.

Offshore Outsourcing: 
Offshore outsourcing occurs when a company outsources their operations to another organization outside of their country or region. Offshore outsourcing can greatly reduce labor costs, but is also more prone to language and cultural barriers. It is this type of outsourcing that is also generally connected to negative customer service sentiments. Remember, not all outsourcing providers are the same; if you are considering an offshore outsourcing option, be sure to vet your potential service providers thoroughly before engaging in any relationship.

Near-shore Outsourcing: Near-shore Outsourcing is the middle-ground between onshore and offshore options. Near-shore outsourcing occurs when a company outsources their operations to another organization in a nearby country or region. Not only can near-shore outsourcing save money, but may provide better alternatives for any language or cultural needs.

Any outsourcing solution you choose is bound to help reduce costs while improving your access to a specialized and skilled labor pool. However, depending on cost, language, and location requirements – your needs will determine the right type of outsourcing for your organization.

When Should You Outsource?

Knowing when to outsource a business process can be tricky. However, there are several signs that it might be time for you to outsource.

5 Signs it is Time to Outsource

Need to Lower Overhead: Hiring and training new employees comes with significant overhead. Instead of increasing your staff, you may consider outsourcing – reducing downtime and decreasing labor costs.

Lower Labor Costs: Your employees may be spending too much time on routine tasks. When skilled labor is allocated towards simple tasks – like answering phones, hunting down invoices, or performing data entry – you are losing valuable time better spent on value-added activities. Outsourcing your labor intensive processes can help free up valuable time for your staff to focus on more important tasks. A perfect example of this would be our AP pre-processing services – which, among other benefits, will eliminate costly labor intensive processes from your AP process.

Scaling your Business: There are inevitable obstacles involved with expanding your business. Outsourcing these tasks is a great way to facilitate a smooth transition period with the help of niche service providers. Consulting firms, M&A firms, etc. are all examples of an outsourced service designed to aid in company changes.

A Skills Gap: There will be times when a business is not equipped with the skill set to address a particular problem. Addressing these issues with an outsourced solution is a great way to ensure that the process/job is done correct the first time while saving time that may have been allocated learning and implementing a solution. A great example of skills-gap outsourcing can be found in the relationship between IT solutions providers and the organizations that employ them.

Cyclical Needs: If your business fluctuates throughout the year, outsourcing can be a fantastic option for temporarily ramping up your services. It does not make sense to invest in resources during “down” time, making an outsourced solution very appealing.

Outsourcing is a great way to grow and improve your organization while maintaining costs. While outsourcing is not right for everyone – understanding your options and when to consider them will help you make the right decision.

For more information about improving your internal processes, contact us today!


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