With the growing demand for more outsourcing companies on the market, businesses need to choose an outsourcing partner that is the right fit. To start outsourcing your business processes, you must develop an outsourcing strategy.
With strategic outsourcing, you can ensure your business’s future growth and development.
What Is an Outsourcing Strategy?
It is simple to outsource core and non-core processes, or both, at the same time. Most firms across various industries outsource their non-core services and processes to focus on their primary business goals and mission.
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When businesses seek to outsource some of their processes or services, they start by developing an outsourcing strategy. An outsourcing strategy is a way companies outline their goals and make a strategic plan to help them achieve them with the help of an outsourcing partner.
Types of Outsourcing Models
Outsourcing is an excellent, cost-effective solution for businesses across various industries to grow business by utilizing third-party vendors. By outsourcing non-core services, businesses can fill skill gaps and accelerate development.
However, before outsourcing your services, it is essential to consider your company’s needs. This is because different outsourcing models are available, and you must choose the one that best fits those needs.
There are three types of outsourcing strategies: service-based, location-based, and relationship-based. Service-based outsourcing models are as they sound: you choose the vendor based on the services you intend to outsource.
Location-based outsourcing models depend on how far away the outsourcing team is. Relationship-based outsourcing depends on how you work with the outsourcing company.
Service-based outsourcing models
Front office
Outsourcing companies that provide customer-facing services are front-facing. Front-facing outsourcing services include tech support, customer service, marketing, and sales.
Outsourcing these services offers businesses access to specialized staff with unique technical knowledge.
Back office
Outsourcing services that are not customer-facing is back-office outsourcing. Back office services include IT, HR, business process automation, quality assurance, and more.
Through outsourcing back-office services, companies can focus on their primary mission instead of wasting time and funds on internal training of new staff.
Location-based outsourcing models
Offshore outsourcing
Offshore outsourcing means a company works with outsourcing companies based in countries abroad. For example, you may offshore some services to a country where labor is more cost-effective or tax-saving.
Nearshore outsourcing
When you are outsourcing services to a neighboring country, it is known as nearshore. Nearshore outsourcing is a cost-effective talent acquisition without worrying about significant time zone differences.
Onshore outsourcing
If you outsource services in the country your company is based in, it is onshore outsourcing. This means you outsource your processes or services in the city you operate in some other city within the same country.
Relationship-based outsourcing models
Staff augmentation model
This type of outsourcing model means you get help from an outsourcing company with your internal software development projects. In this case, the internal team works with employees from the outsourcing company for their specific expertise.
Usually, the staff augmentation outsourcing model is appropriate when you need expertise that you do not have internally.
Managed (dedicated) team model
Unlike staff augmentation, the managed team model does not involve the internal team working with employees from the outsourcing company.
Instead, the outsourcing company is hired to do a certain amount of work and reports to a project manager or the clients. This means the outsourced services are handled independently, and the management goes to the outsourcing company or clients.
Project-based model
With the project-based model, you fully delegate the service to the outsourcing company. The outsourcing company handles everything from beginning to completion of the outsourced project.
How to Make an Outsourcing Strategy?
When considering your strategy, first decide if you plan on outsourcing a single project or a complete service component of your business. This will help you develop the appropriate strategy.
Outsourcing strategies include the rules, procedures, and governing laws of the outsourcing company a firm hires, along with the rates they pay. You may outsource services for different reasons, such as the following:
- Time-sensitive projects
- Complex tasks to accomplish
- Lack of expert in-house labor
- Overloaded firm
- Lack of available technology in-house
If you want to start outsourcing tasks or services, first outline the goals, needs, and limitations to develop the best strategy. Below, you can read our advice on the appropriate steps to consider when developing the strategy for outsourcing.
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Identifying core competencies
First, you should look internally before outsourcing tasks and services. Ensure to identify what you are good at and what you could use help with. Once you have identified your business’s core competencies, you can pinpoint which services need outsourcing.
You can focus on your business development’s main mission and critical aspect while outsourcing the time-consuming tasks to a third-party vendor. Outsourcing lets you take advantage of skilled labor to handle these tasks.
Most often, businesses outsource services and tasks that are repetitive or do not directly correlate to their primary goals. Still, these services and tasks are essential in the smooth running of the business.
You can focus on the critical aspects of your firm’s development while the outsourcing partner oversees the subordinate processes.
Assessing available internal resources
As a part of crafting an effective strategy for your outsourcing needs, it is vital that you assess internal resources. Internal resources include both your business’s capabilities and limitations.
Once you identify the strengths and weaknesses of your internal operations, you can narrow down which services need outsourcing. For example, you may have a strong marketing team but need help to keep up with customer service operations.
In this case, your weakness is your internal customer service management, meaning this process can benefit from outsourcing. One good way to identify your business’s weak points and strengths is by making a list.
You can also utilize flowcharts and diagrams to organize this information. A comprehensive analysis of available internal resources is the best way to make outsourcing decisions.
Decide if outsourcing is needed
Before you start outsourcing any processes and services, consider the productivity of your internal departments. Weighing the productivity of internal departments helps determine whether outsourcing is necessary at all for your business.
To determine productivity, you should examine how each internal department handles given responsibilities. Also, determine the results they achieve and if they align with your company’s objectives.
Any internal department that is producing subpar results or failing to meet its quotas is a sign that it could benefit from outsourcing. Examine the following areas as they are the most often outsourced business areas:
- Human resources
- Administrative tasks
- Customer service and support
- Financial and accounting tasks
- Digital marketing efforts
- IT operations and management
Outsourcing benefits for internal departments that underperform include the following:
- Gain access to specialized personnel with expert capabilities and knowledge
- Reduce and control operational costs while you increase revenue simultaneously
- Maximize the use of external resources
- Free up your internal resources for other critical purposes
- Reduce training and labor costs of employees
- Allows you to focus on the core competencies of your company
Consider the financial implications
When developing your strategy for outsourcing, it is crucial also to consider the financial implications. Outsourcing should be financially beneficial for your business. Otherwise, there is no need to outsource.
Consider how much you want to spend on outsourcing and set a budget. This way, you can keep track of the expenses without overspending. Also, set goals by how much you aim to reduce the costs of the services you outsource.
Outsourcing companies charge on a production, time spent, and per-project basis. You should work with a company whose payment plans fit your needs. When determining your budget, also include policies and procedures for requesting and approving cost overruns.
Besides these financial implications, your budget must also account for unexpected expenses. These expenses may appear as unexpected employee turnover or increased demand for specialized labor than currently available.
Outsourcing strategies can only meet initial expectations with a set budget that accounts for hidden costs.
Selecting the right outsourcing partner
For this point, you must also look at the state of the global outsourcing market. According to research, the global outsourcing market reached a value of 92.5 billion US dollars in 2019, and because of this, more and more new companies are entering the market.
Each one competes to get their piece of the market, making it more challenging for businesses to identify the right vendors. So, when choosing an outsourcing company for your business, it is vital to do your research.
Some essential factors to consider include expertise, reliability, and cultural alignment.
Expertise
As we mentioned, many new outsourcing companies are popping up on the market. But they need to have the expertise you require.
With expertise as a factor, you get the following advantages:
- Larger pool of professionals with world-class skills
- Experience working with businesses at all levels
- Ability to fill specific industry roles easily
Reliability
Reliability is another factor you should consider when choosing your outsourcing company. Your outsourcing partnership should provide your business with reliable services.
A reliable outsourcing company will be able to deal with potential issues that may arise down the line. The outsourcing company you decide to partner with should know how to deal with issues such as:
- Currency changes – these can negatively impact business when they increase or decrease significantly
- Tech issues and outages – a reliable company should have a risk management plan in place to minimize disruptions
- Business continuity – reliable companies will also have comprehensive business continuity plans
Cultural alignment
Keep in mind that no matter where the outsourcing company is based, there is a possibility that you may have different cultural, social, economic, and geographic standards.
The right outsourcing company for you will be the one that is culturally aligned with your business.
When you are choosing an outsourcing company, consider the potential cultural differences and if they are easily manageable. The potential vendor should provide you with assurances that the different norms won’t cause issues in your partnership.
Conclusion
Outsourcing strategy is the plan you make to outline how you will outsource your services and processes to your outsourcing partner. Strategic outsourcing is crucial in choosing the right vendor to work with and grow your business operations.