THE IMPORTANCE OF OUTSOURCING
Outsourcing is a concept people get fired up about. Some people love it; others hate it. It seems as though nothing divides a room full of business professionals faster than the idea of sending some services out of house.
Outsourcing is the practice of using outside firms to handle work normally performed within a company and is a familiar concept to many entrepreneurs. Small companiesroutinely outsource their payroll processing, accounting, distribution, andmany other important functions often because they have no other choice. Manylarge companies turn to outsourcing to cut their costs. In response, entireindustries have evolved to serve companies’ outsourcing needs. But not manybusinesses thoroughly understand the benefits of outsourcing.
COST EFFECTIVE
Cost-cutting may not be the only reason to outsource, but it’s certainly a major factor. Many businesses embrace outsourcing as a way to realize cost savings or better cost control over the outsourced function.
INCREASED EFFICIENCY
Companies that do everything themselves have much higher research, development, sales & marketing, and distribution expenses, all of which must be passed on to customers. Outsourcing the business functions and working with an outside provider’s cost structure and economy of scale can give your firm an important competitive advantage.
FOCUS
Outsourcing can free the entrepreneur from tedious and time-consuming tasks, such as payroll, so that he or she can concentrate on the marketing and sales activities that are most essential to the firm’s long-term growth and prosperity. Outsourcing can help your business to shift its focus from peripheral activities towards work that serves the customer, and it can help managers set their priorities more clearly.
GROWTH
While growth is usually a good thing, a business can experience growing pains. A good outsourcing firm has the resources to start a project right away. Handling the same project in-house might involve taking weeks or months to hire the right people, train them, and provide the support they need.
REDUCED RISKS
Every business and business investment carries a certain amount of risk. Markets, competition, financial conditions, government regulations and technologies all change very quickly. Outsourcing the business functions to the right providers, assume and managethis risk for you and they generally are much better at deciding how to avoidrisk in their areas of expertise.
ACCESS TO TECHNOLOGY
Some experts tout outsourcing of computer programming and other information technology functions as a way to gain access to new technology and outside expertise. Infrastructure cost is another major concern when it comes to in-house services. Companies that outsource HR might choose to do so because implementing a new payroll system is expensive.
TYPES OF OUTSOURCING
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Business Process Outsourcing
BPO involves outsourcing non-core business processes and functions to external service providers. This can include functions like customer support, call center operations, data entry, human resources, payroll processing, finance and accounting, and procurement. BPO can be further classified into back-office outsourcing (internal processes like data entry and record keeping) and front-office outsourcing (customer-facing processes like customer support and telemarketing).
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Information Technology Outsourcing
ITO focuses on outsourcing IT-related functions and services. This can include software development, application maintenance and support, infrastructure management, network operations, database administration, cybersecurity, and cloud services. ITO can involve both on-site and remote support, depending on the requirements of the organization.
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Knowledge Process Outsourcing
KPO involves outsourcing knowledge-intensive tasks that require specialized domain knowledge and expertise. This includes services such as research and development, data analytics, market research, intellectual property research, legal and patent services, financial analysis, and consultancy services. KPO often requires advanced analytical and technical skills.
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Manufacturing Outsourcing
Manufacturing outsourcing, also known as contract manufacturing, involves outsourcing the production of goods to external manufacturers. Companies may outsource the manufacturing of components or entire products to specialized factories or suppliers, often in countries with lower production costs. This allows businesses to focus on product design, marketing, and distribution while leveraging the manufacturing expertise and resources of the external partner.
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Offshore Outsourcing
Offshore outsourcing refers to outsourcing tasks or services to service providers located in a different country. This type of outsourcing is often chosen to take advantage of lower labor costs, access a broader talent pool, or leverage time zone differences for 24/7 operations. Offshore outsourcing can apply to various functions, such as software development, customer support, and business processes.
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Nearshore Outsourcing
Nearshore outsourcing involves outsourcing tasks to service providers located in neighboring or nearby countries. This type of outsourcing offers advantages like geographical proximity, similar time zones, cultural affinity, and potentially lower costs compared to onshore outsourcing.
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Onshore Outsourcing
Onshore outsourcing, also known as domestic outsourcing, involves outsourcing tasks or services to service providers within the same country. While it may not provide the same cost advantages as offshore or nearshore outsourcing, onshore outsourcing can still offer benefits such as cultural alignment, language compatibility, and reduced logistical complexities.
IT OUTSOURCING MODELS
Workforce augmentation model
The workforce or staff augmentation model is a form of contract hiring; businesses recruit talent to fill skill gaps within their organization. These employees are often remote and may work in other countries. Hiring temporary employees also means that businesses aren’t required to pay the additional cost of their benefits.
Project outsourcing model
Outsourced IT projects typically include projects with a clear beginning and finish. These projects are marked by tasks that must be completed.Some outsourced projects are more collaborative and flexible; the hiring business and the outsourcing vendor work together to develop an end product, and the project might change throughout the process. However, others are more fixed; compensation is determined at the very beginning, and the end product doesn’t change throughout.
Dedicated team model
A dedicated team model provides a group of contract employees who collaborate with the paying organization, often on a project. Comparatively, an outsourced team might work with the business long-term, helping with multiple projects. Outsourced dedicated teams are good choices for major software development. Because they can both be project-focused, dedicated team and project outsourcing models sometimes overlap.
Dedicated development center
A dedicated development center (DDC) is a third-party organized group of IT professionals who manage all aspects of a client’s company IT infrastructure. A DDC differs from a dedicated team model in that it can be responsible for all client IT infrastructure and processes and does not need to be integrated with the client’s existing IT staff, according to Forbes. Often, members of a dedicated development center maintain control over the work processes.
What IT Functions Need Outsourcing Services?
Businesses can outsource many tasks or services, depending on their needs and budget. Some of the IT activities that are commonly outsourced include:
- Software/ Application development & maintenance
- Web development
- Software and application testing
- Data analytics
- Technical support
- Consulting and professional services
- Technical training courses