Outsourcing was born in the 1950s, but gained traction in the 1980s out of a pressing need by businesses to enhance their flexibility and agility and maximize the impact of their competitive advantage on their profits. Today, it remains a valid and valued business strategy.
Of course, outsourcing has grown much larger in scale, with companies outsourcing business processes to individuals, teams and companies halfway across the world. For instance, a software as a service company based in the United States or the United Kingdom is no longer limited to outsourcing customer services to onshore third-party providers. They may delegate customer service functions to a company in the Philippines, Malaysia or Sri Lanka.
The nature of outsourcing has also evolved greatly from what it used to be when it was first conceived. Outsourcing was employed primarily by the manufacturing industry until other businesses took it up to realize transactional efficiencies.
Outsourced processes have expanded to include information technology processes, and outsourcing models have changed in response to modern business needs.
Modern Outsourcing Models
Deloitte identifies the following as the prevailing outsourcing models. Each offers distinct benefits and serves unique requirements. If you’re considering outsourcing, choose a model aligned with your business goals and operational demands.
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1. Traditional Outsourcing
Think business process outsourcing (BPO); that’s traditional outsourcing, and it’s primarily focused on making the performance of straightforward repetitive tasks more cost-efficient.
The interaction between the outsourcing client and the service provider is largely transactional, characterized by short-term engagements to cover discrete and well-defined tasks, like payroll processing, loan packaging, candidate sourcing, applicant screening, and network administration.
The traditional outsourcing model is particularly apt for businesses that want to realize cost savings from outsourcing repetitive, non-core tasks, particularly those that do not require specialized expertise.
2. Managed Services
Managed and dedicated services outsourcing is an evolved version of traditional BPO. Unlike the latter, it goes beyond cost reduction and adds value beyond cost efficiency.
Managed services outsourcing is akin to hiring an entire remote team and then delegating operations to a management company. This “management company” (i.e., the outsourcing vendor) takes care of everything the team needs and is, on paper, the team members’ employer. The outsourced team works exclusively on the client company’s projects according to its guidelines and workflows.
In the managed services model, the outsourcing vendor provides support for non-discrete or integrated processes, applications, or even entire business domains. It is particularly appropriate when outsourcing infrastructure support, cloud operations, and other multifaceted processes that require specialized knowledge and expertise.
The managed services outsourcing model fosters a long-term partnership between the outsourcing client and provider, often defined by service-level agreements (SLAs) that ensure adherence to performance standards. Pricing is typically tied to outcomes and service delivery, aligning outsourcing metrics with the client’s business goals.
3. Operate Services
The most advanced among the three outsourcing models, operate services is a holistic approach focused on delivering outcomes and spurring innovation. This model seamlessly integrates technology, leveraging automation and data insights to generate substantial business value.
The operate services model provides businesses with on-demand access to expert talent and cutting-edge technology. Service agreements are tailored to evolving business needs.
The relationship between the business and the vendor transcends conventional boundaries. It is more like a collaborative partnership, with the outsourcing provider operating as an extension of the client.
The operating services model suits businesses aiming to harness innovation, access specialized talent, and adopt leading technologies. It is specifically a good fit for highly technical services, such as analytics-as-a-service and cyber detect-and-respond, providing coverage in areas where most enterprises typically have no in-house capabilities.
Outsourcing in Action
Outsourcing works, as the following companies that have used it to their advantage can attest.
Slack is a business messaging and collaboration tool that outsources software development, branding visual design and website development. This allowed the company to save on startup costs, which meant more bang for their buck.
Skype, a communication platform, benefited from the work of outsourced developers in Estonia. It allowed the company to develop its product faster and at a lower cost.
A massive online marketplace, Alibaba has a distributed customer service infrastructure and outsources to different locations, including the Philippines.
Basecamp is a project management and online collaboration platform. It outsourced a significant portion of its development work, which allowed it to focus on its core competencies and accelerate its growth.
Skyscanner is a travel aggregator or search engine that allows users worldwide to compare flight options from different airlines and online travel agencies. It outsourced customer service, increasing customer satisfaction and enhancing customer experience.
Take Advantage of Outsourcing
Outsourcing is a business strategy worth exploring if you want your company to become more agile, flexible and competitive. Many enterprises, including big-name brands, have already proven its utility.
You, too, can take advantage. Are you a money transfer and remittance company? Outsource customer support offshore. Are you a lending company? Outsource loan packaging, underwriting and other loan processing tasks.
Whatever the nature of your business, outsourcing can help your business grow. Just be sure to choose a suitable outsourcing solutions and work with a reliable outsourcing vendor to maximize outsourcing benefits and minimize outsourcing risks.