As a means of maximizing performance and gaining a competitive edge, more and more companies are considering outsourcing as an integral component of their business strategy. But, outsourcing in business is quite complicated. Despite its widespread use, there are several types of outsourcing that every company must know.
Exactly why do businesses outsource? There are really various reasons for this, depending on the environment of the business and its actual requirements. You may access a variety of services with expert outsourcing and just pay for the ones you require. This is great for both growing your business and getting one-time services. By doing this, you might be able to fill any skill gaps in your in-house staff.
What is Outsourcing?
A business practice known as outsourcing involves hiring a third party to carry out duties, manage operations, or offer services on the company’s behalf. The outside business, often referred to as the service provider or third-party provider, makes arrangements for its own personnel or technological resources to carry out the duties or offer the services either onshore or offshore.
Today, businesses can outsource a variety of jobs or services. Among the different types of outsourcing services include information technology. Programming, application development, and technical support tasks are frequently outsourced.
Businesses choose to outsource and rely on the third-party experience to gain benefits such as cost reduction and streamlined operation. Without having to add extra staff, you may locate a variety of services through outsourcing to enhance operations at your business.
Types of Outsourcing Services
Juggling everything in-house as your company starts to expand can be challenging. Outsourcing gives you the time and resources you need to concentrate on other company concerns while still giving consumers high-quality service.
Depending on the demands of the company, outsourcing may take many shapes. It is important to understand the types of outsourcing in addition to learning what outsourcing is from the definition of outsourcing jobs and how they function.
1. Onshore Outsourcing
Onshore outsourcing, often known as domestic outsourcing, is the simple process of using outside contractors to provide services for a company within the same country. The employees in today’s contact centers must be adept at solving complex problems, excel at people management, collaborate well in teams, and possess a high level of emotional intelligence.
A business can employ a local business for IT and IT-enabled goods, services, operations, and support thanks to shore outsourcing. By doing this, businesses may minimize their own IT infrastructure and support employees while still adhering to any applicable operational or regulatory requirements.
Example: Outsourcing to domestic suppliers
2. Offshore Outsourcing
Business process outsourcing (BPO), commonly known as offshore outsourcing, is the practice of deploying competent personnel services from nations with cheaper labor costs to complete work for your company. IT, sales, and administrative tasks are frequently performed for companies all around the world from nations like the Philippines.
Accessing foreign nations that have greater resources for people with particular expertise might be advantageous for businesses. At the same time, consumers save money while still receiving high-quality service. Businesses benefit from offshore outsourcing since they don’t have to worry about overhead costs.
Example: Outsourcing to a different country
3. Nearshore Outsourcing
Every business wishes to acquire services of the best caliber at reasonable prices. The problem is that these services aren’t always available in a company’s home nation. In that situation, outsourcing nearshore is the ideal choice. The practice of “nearshoring” involves assigning some IT-related tasks, such as developing mobile applications, to businesses based in surrounding nations.
As one of the convenient types of outsourcing, working with a nearshore outsourcing provider helps you avoid the time-zone problems that often impede effective collaboration. A service provider often resides in the same or a nearby time zone, so they don’t have a time difference and may speak during regular business hours.
Example: Outsourcing to near or neighboring countries
4. IT Outsourcing
IT service outsourcing is a type of outsourcing used to contrast business process outsourcing since it involves continuing IT services. These include mainframe hosting, desktop support, and telecommunications installation and maintenance; as well as the outsourcing of special, one-off systems development projects.
Outsourcing IT services helps address the complexity of the delivery model, security and privacy issues, visibility and control over the total IT infrastructure, and the challenges inherent in aligning IT deliverables with business requirements. Scalability, more reliable disaster recovery, and easier access to subject matter experts are common benefits of IT outsourcing.
Example: Outsourcing IT-enabled business process, application service and infrastructure solutions
The process of outsourcing to several service providers is known as multisourcing. It is a typical corporate strategy for addressing escalating company needs. It is distinct from conventional internal services or outsourcing from a single provider. A portion of the company’s internal resources are also used in a multisourcing agreement to carry out operations and maintain technical infrastructure.
Suppliers can meet the expectations of the clients which, in turn, will considerably increase operational efficiency. It is through knowing the companies they assist better with multisourcing. Due to the reduced risk associated with their provider, this type of outsourcing can also help address corporate risk management measures. Additionally, it provides service suppliers a competitive advantage.
Example: Outsourcing multiple suppliers
6. Outsourcing Manufacturing
Many times, all production requirements may be completed internally. However, the company can need more resources if either the demand or production capacity changes. That is where outsourcing comes in. With this type of outsourcing, the business may be able to expand without incurring additional costs.
One of the primary advantages of outsourcing production is lower labor expenses. This type of outsourcing can be a good solution in the proper situations, despite the fact that there can be wider humanitarian and regulatory considerations involved. However, by choosing this type of outsourcing, a company must address production issues carefully because it also affects the company’s performance and brand.
Example: Outsourcing to a third party to produce goods or services
7. Process-Specific Outsourcing
The development of outsourcing has resulted in the large range of services that are offered today. Although the concept of process-specific outsourcing wasn’t common before, it is now prevalent in the modern global economy. Nowadays, it is increasingly typical to contract out specific operational-related tasks to other businesses or divisions that are experts in those associated services.
Process outsourcing talks about the specific tasks and specialized procedures that let you concentrate on core business operations. In order to adequately reach the desired outcome, several operational duties and stages may be outsourced at this point. Thus, the completion of orders will take less time with this kind of outsourcing.
Example: Outsourcing one specific function of a business
8. Project Outsourcing
If the job at hand involves talents that are beyond the capability of the business’s current staff, outsourcing is an efficient way for firms to accomplish the project quickly. This type of outsourcing has been shown to increase core business competencies and assist businesses in reducing capital expenditures since the necessary tools are offered rather than acquired.
In fact, no matter how you look at it, you’ll see that a corporation may gain much from outsourcing project management. You could come across someone with talent in web or software development who can manage the project well. However, you also run the risk of picking a replacement for the project that may not be the best for them.
Example: Outsourcing big or complex projects
9. Knowledge Process Outsourcing
The practice of outsourcing knowledge-intensive, data-driven tasks, such as obtaining, managing, analyzing, and providing unbiased insights into enterprises, is known as knowledge process outsourcing (KPO). More firms are becoming aware of the benefits of knowledge process outsourcing, a subset of BPO, as a result of the rising popularity of BPO.
Consider a scenario in which your company needs employees with extremely specialized expertise and abilities. For instance, you could be seeking for a reputable research and development team to help you with highly complex tasks. Then, working with a KPO service is your best option.
Example: Outsourcing expertise and specialized knowledge
10. Business Process Outsourcing
Business process outsourcing, often known as BPO, is the practice of using a non-core service provider to carry out tasks for your business. A specialized organization is better able to handle these tasks, thus most businesses opt to outsource them. Large industrial organizations initially used BPO to help with supply chain management. However, BPO has expanded today to cover a variety of industries, including business services.
A business must first decide which processes it needs to source out to another organization. The next step is to select the best vendor and assess the financial and logistical effects of switching the process from internal to external agencies.
Example: Outsourcing non-core and administrative functions
How Does Professional Outsourcing Work?
It is important that businesses concentrate on the partnership as much as the logistics when outsourcing tasks. With that said, outsourcing is a partnership, not a project for purchase; and it involves managing relationships as well as service-level agreements. It is more difficult to maintain and secure a trusted connection than it is to set up service standards and relationships.
There are many various methods and approaches to outsourcing that are effective. When a company or organization employs another person to carry out specialized activities, it is known as outsourcing. Outsourcing can be local or global; when it is global, it is known as offshoring or offshore outsourcing.
It has evolved into a standard practice, particularly for small- and medium-sized organizations. It enables your company to concentrate more on its core competencies in order to grow and succeed. However, companies must be aware of the inevitable expiration date of the contract in order to guarantee that all parties meet their commitments and continue to be present until the contract is complete.
Outsourcing Models, Pricing, and Service-Level Agreements
Outsourcing business processes enables companies to scale operations, increase flexibility, and control expenses. Since contact centers have become more widespread, they have enabled businesses to save money and give their consumers better service.
Workspaces, desktop computers, internet phones, and other operational equipment are provided with employment in BPOs. Typically, the service provider and employee are situated abroad, either in a separate city or nation, from the client.
The fact that the customer is in charge of the project is one of its benefits. They may dispatch a staff member from within to train, manage, and scale their employees in response to demand. There are types of business models that companies can decide on prior to hiring a provider.
- Fixed price (FP) model
- Cost reimbursable model
- Cost plus fixed fee
- Time and materials model
- Consumption-based pricing model
- Incentive-based pricing model
- Staffing model
When looking for BPO businesses, get quotations. Make sure you comprehend the price structure of the BPO business. Compare the price of outsourcing services to your present costs. Consider how outsourcing might assist you in achieving your objectives and overcoming obstacles. Finally, pay attention to your company’s expansion.
When comparing bids, you must compare based on the service provided because BPO businesses use various pricing strategies. You receive a price for the initial startup fees, and you subsequently pay a monthly charge to cover ongoing labor and expenditures. Depending on your demands, you may scale up or down, which will change the cost.
The measuring instrument used by the BPO business to determine its baseline performance levels is called an SLA. It includes information on the services that will be rendered, the metrics by which they will be evaluated, the hiring company’s and the BPO provider’s obligations, the remedies and consequences for violations, and instructions in the case that the agreed-upon SLA has to be modified or adjusted.
What is an Advantage of Offshore Outsourcing?
With this type of outsourcing, you have access to a large and diverse pool of talent; especially to highly talented, college-educated foreigners from English-speaking nations. Using offshore teams to supplement the present workforce will ease the strain to recruit workers with the necessary abilities in developed nations.
Offshoring provides a wide range of skills that are available for knowledge-based operations, which is advantageous for any firm wanting to meet specialized requirements.
Access Talent from Outsource-Philippines Today!
Understanding the various types of outsourcing and how they may be used to your advantage can change the way your business is run. When you include outsourcing into your plan, not only do you reduce expenses and concentrate on your key capabilities; you also provide your staff the opportunity to advance their current skills and shape them into stronger assets for the company.
It’s time to choose which business operations you want to outsource, now that you are familiar with the various types of outsourcing. See our list of the services you need to outsource right now in order to grow your company. Get a free quote or book a consultation!
Outsource-Philippines is an offshore outsourcing service provider with experts in digital marketing, IT, web development, creative design, customer and technical support, and data management.