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Outsourcing - Is it in Your Strategy Options?

There comes a point in the life of any successful business when it will require skills or expertise not available within the company. At that point, the business will review its strategic options, these days outsourcing is invariably one of the logical options. With the pressure of growth, competition or evolving mature markets, businesses are forced to think strategically about all possible options for the next stage of growth.

Professional Business Outsourcing (PBO) is a process where a party engages another party to execute and manage a specific activity to agreed performance standards. These days, many successful businesses have at least one outsourced function, whether it’s social media marketing through the Instagram account, PR, Accounts Management, IT, technical development or third party manufacturing. When a company outsources its recognising that it needs more scale or support to build market scale, create impact or bring a new function to the forefront for the next strategic growth stage for the company.

Generally, the outsourced function is not one of the company’s core competitive advantages, however this approach can be developed very successfully if the company is using outsourcing to build scale or competitive advantage prior to its own investment in the required skills. Allowing another group to manage a specific process, the company is freed to focus on its core deliverables whilst knowing it does not have to divert significant internal management attention and time to achieve the outcomes of the outsourced process. Simply put, outsourcing brings expertise into your company and keeps it on strategy at times when you might be pushed to manage the additional effort and skills required to take a next step forward as a business in a market that is likely evolving around you.

Despite the fact that the concept of outsourcing has been in existence since the beginning of specialisation, companies have only recently started applying this concept to more specific processes, such as billing and payroll. With outsourcing, the execution of these processes became cheaper and more efficient because the service providers have the focused human and material resources for the job.

Today, outsourcing has splintered into various distinct specialised functions for more efficient service delivery. In addition to the demand for these distinct areas of specialisation such as advertising, administration, accounting, IT support, some companies outsource all their operations or accounting to service providers as it gives them strategic agility. Service providers have risen to fill this need.

Today, Business Process Outsourcing (BPO) consists of accounting/finance, marketing, advertising, human resources, claims processing, call-centre outsourcing and technology functions. These contracts can last for short term periods (6 months) or for several years Many businesses with limited time and financial restrictions may use a combination of in-house and third party providers (multisourcing), in order to shorten their turnaround time and improve their competitive advantage in the market. They engage many outsourcing companies to take charge of virtually all of their processes - sales, marketing, localisation, coding, design, and testing, freeing management attention to focus on their key competitive advantage or allowing them to build competitive advantage in a lower cost environment that they would not previously been able to access. Companies that successfully adopt outsourcing models go through four key stages to successfully adopt the outsourced function into their strategy:

1. Strategic thinking stage: development of the company’s perception about the benefits of outsourcing in its processes.
2. Appraisal and selection stage: examination of the company’s outsourcing need, the consideration of several outsourcing approaches, and the        selection of an appropriate service provider to execute the project(s).
3. Contract drafting stage: set up of a legal framework including the pricing and SLA (service level agreement) components.
4. Outsourcing administration and monitoring stage: constant monitoring and fine-tuning of processes and deliverables.

Across all the stages, three elements drive the outsourcing process:
• Top-level executive support for the outsourcing project from the client’s company.
• Quality communication to the employees involved in the project.
• The ability of the client to supervise the service providers.

The advice legendary business consultant Peter Drucker gave companies was: “Do what you do best and outsource the rest!”

Members of the project team from both the outsourcing service provider’s side and the client’s side must possess certain skills that will promote a good working relationship. These skills include flexibility in times of business changes, project management, communication, negotiation and a good understanding of contract deliverables and service level agreements (SLAs).

Published on by BiziNet

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