The business world keeps on evolving and companies all over the world are being forced to transform their business operations in order to remain competitive. One of the ways businesses are transforming their operations is through business process outsourcing. Outsourcing is simply utilizing external resources within your business operations. Interestingly, outsourcing has in itself undergone a transformation over the years.
Traditional outsourcing aimed at cost-reduction through outsourcing non-core business activities. ‘Non-core’ was thought to mean in-frequent, thus companies outsourced the activities that happened rarely, if at all. For example, an IT person to repair computers or a Trainer for a once-a-year training session.
Modern-day disruptive outsourcing focuses on value creation and competitive advantage with organizations focusing on what they are good at, not necessarily what their core business is. For example, Nike, a globally renowned brand, manufactures most of its footwear outside the US. This has enabled Nike to grow to a market leader commanding 47% market share in 2017. WhatsApp, Google, Microsoft, and Alibaba are examples of successful technology companies that have adopted outsourcing to drive innovation and growth.
Closer home, many organizations have outsourced their call center and customer care services. The largest beer manufacturer also outsources transport and logistics aspects to a different organization. Even though distribution is critical for any manufacturer, the company has found it strategically advantageous to outsource this important business process. Uber has also disrupted the taxi business in Kenya with strategic partnerships with car owners and drivers who are responsible in delivering value to the end consumer. Safaricom has been able to dominate the market with its Agency business model, a model that financial institutions have tried to duplicate with moderate success.
As outsourcing continues to disrupt how business let’s review the top three benefits that are driving organizations to outsource:
Efficiency and comparative advantage – With ever-increasing demands to meet client needs and limited resources, business leaders are opting to focus on their key competencies. Probably borrowing from David Ricardo’s Theory of Comparative Advantage, businesses are considering the opportunity cost of in-house production of goods and services and opting to outsource. For example, Uber focuses on what they are good at, which is technology and their strategic partners handle the actual service delivery to Uber Clients. With this business model, Uber has been able to scale and operate in multiple countries. I believe Uber wouldn’t have scaled as fast and as much as it has if it had to deal with the challenges of actually operating the cabs in multiple countries all over the world. Outsourcing helps Uber efficiently run operations all over the world.
Time and Financial Cost saving strategy – Outsourcing has been used as a strategy to save costs by many organizations. It is evident that it would have cost Uber billions of dollars in Capital expenditure if they were to own all the cars that use their platform. It would also cost them a lot of time handling operational issues in different countries. In services outsourcing, companies save costs and time by delegating the responsibility and cost of recruitment, training and managing human resources. This makes outsourcing quite attractive for startups that lookout for strategies to grow without financing challenges.
Access to Professional Expertise and Skills – Many business owners and managers do not have all the skills and expertise needed to run a successful company. Rather than try to learn all the new skills needed, business owners and managers can focus on their main skills and outsource other business processes to professionals. Business processes that can be easily outsourced include Bookkeeping, Payroll Processing, Tax Services, Financial Planning, Manufacturing, Marketing Services, Public Relations Services, among others. The advantage of outsourcing is that it is the outsourcing company’s responsibilities to remain on top of technological or regulatory changes in their areas of expertise and advice their clients accordingly.
There are additional benefits of outsourcing not discussed here. As the business world keeps on changing, many organizations will take up outsourcing as the main strategy to drive efficiency and save on costs. Is your business ready for outsourcing?