Simply put, outsourcing is the practice of delegating work normally performed within a company to an outside firm – it’s a concept that’s pretty familiar to most executive teams. Even small businesses routinely outsource processes that aren’t part of their core competencies like payroll or IT functions, leveraging benefits ranging from lower costs to service innovations.
But the stark reality is that not many organizations thoroughly understand the depth of the rewards they can reap from outsourcing. Chances are, they don’t know what they don’t know. Yes, outsourcing can save the business money, but that’s far from the only long-term benefit – or even the most important.
Outsourcing is a key strategic step to gaining a competitive advantage in today’s global economy. In fact, a recent KPMG study found that companies now manage 83 percent of their finance and accounting functions alone under a shared services or outsourcing model. And nearly 60 percent plan to increase their reliance on BPO.
1- Sharpen your focus on core business processes. Every business has limited resources, and every manager has limited time and attention. Mundane, low-value tasks consume too much of an average workday, leaving employees with little time or energy to focus on more important activities. Outsourcing lets companies wash their hands of time-draining back office processes while still realizing their benefits. And even better, it helps your employees shift their focus from work that “keeps the light on” to core business competencies – improving customer service, driving business growth, and handling more complex tasks, while helping managers set clearer priorities.
2- Increase efficiencies. Companies that do everything in-house have much higher expenses – and those expenses must be passed on to customers. An outsourcing provider’s cost structure and economies of scale can deliver an important competitive advantage to your organization.
Outsourcing also gives organizations a chance to redesign and streamline business processes. Leveraging the provider’s expertise in automation, process improvements, and overall best practices can transform outdated, clunky operations into modern back offices that function as agile, strategic partners to the business. Many times, such sweeping changes are difficult to make in-house, where the same work has been performed in the same way for years.
Outsourcing enables companies to realign their organizational structure, adjusting the span of control to better match the proper ratio of managerial vs. non-managerial roles, while ensuring that the appropriate resource levels (and cost) are performing the tasks required. Outsourcing presents a unique opportunity to strategically build an operating model from the ground up that’s perfectly optimized for delivering the work it needs to accomplish.
3- Get new projects off the ground quickly. When new projects are handled in-house it can take months to get them going, by the time you hire and train the right people and give them the support they need. If a major capital investment is required, like a new building or pricey technology, the timeline stretches even longer. A skilled outsourcing provider not only has the resources to start new projects right away, but the expertise to hit the ground running.
4- Tap into a world-class pool of talent. With unemployment at historic lows, it’s tough to be a hiring manger in the U.S. Outsourcing enables companies to expand beyond the limitations of local markets and tap into a global knowledge base. It also levels the playing field, creating economies of scale that help middle-market organizations afford the same level of world-class talent utilized by Fortune 500 companies in their shared services centers.
Outsourcing delivers a better quality of transactional work as well. Many American workers – and especially Millennials – tend to view back office tasks as beneath them. Nearshore outsourcing, on the other hand, provides a team of skilled, reliable, highly educated resources who see transactional tasks as high-end work, take pride in reaching the highest performance levels, and offer fresh ideas gleaned from performing similar work for other multinational companies. Some nearshore markets, such as Costa Rica, where more than 300 multi-nationals have set up shop, offers a large pool of potential employees who are knowledgeable of, and used to working, at the pace and style of US operations.
5- Scale your workforce up and down as needed. Hiring and training staff for short-term or peripheral projects can be pricey, and temporary employees often don’t live up to expectations or move on before the project ends. Outsourcing allows operations with seasonal or cyclical demands to easily scale up and down as needed, providing skilled resources for a fixed period of time at a consistent cost. This flexibility also helps shield your business from downturns in the market, enabling you to control labor costs that are fixed at competitors who rely solely on in-house workers.
6- Reduce risk. Every business investment is plagued by a certain amount of risk, whether it’s changing government regulations, technologies, or financial conditions. Not only do outsourcing providers share some of this risk, but they are experts at deciding how to avoid and manage risk in their areas of expertise. And most have the various certifications (SSAE-18, PCI, HIPAA, etc.) to validate their operational controls and ability to manage risk.
Dividing and delegating operations also reduces risk within your organization. Periods of high employee turnover often lead to inconsistent business outcomes and unhappy customers. Outsourcing provides a level of continuity to your company and avoids the negative repercussions that accompany a substandard level of work.
7- Control costs. Cost-cutting isn’t the only reason to outsource, but it’s certainly an important factor. It converts fixed costs into variable costs, releases capital for investment elsewhere in your business, and helps you avoid large expenditures into areas that fall outside your core competencies.
Outsourcing can make your organization more attractive to investors by giving you more capital to pump into revenue-producing activities. It also eliminates the need for investment in pricey infrastructure and technology, as the outsourcing provider takes full responsibility for the business processes it assumes.
In the U.S., the tight labor market has employers overpaying for employees who often fail to perform transactional tasks to the highest levels. Auxis research found that outsourcing finance and accounting positions from New York to Costa Rica cuts labor costs by an average of 42 to 51 percent.
That’s a savings of $44,000 to $63,000 per head. Think about the number of employees performing this low-value work and you start to see the significant boost outsourcing can provide to an organization’s bottom line.
Savings derived from economies of scale and productivity gains typically average between 10 to 20 percent after outsourcing. Just the implementation of Robotics Process Automation (RPA) can generate cost savings of 40 percent in the areas it’s improving. But all of those numbers can rise depending upon how much room for improvement there was before the business was outsourced.
Outsourcing enables companies to receive exceptional work at lower costs. But while cost savings plays a key role in the decision to outsource, it’s generally not the leading factor. Outsourcing back office operations frees up employees to focus on the value-creating activities that build your brand and drive growth. It also gives organizations a unique ability to address challenges within their current structure and drive operational efficiencies.
An experienced outsourcing provider can help you unlock the many benefits of outsourcing for your organization, bringing years of experience in business practices and expertise that can boost the bottom line of your company.
Recognized as one of the Top 100 Global Outsourcing Providers, Auxis’ unique perspective as both advisor and outsourcing operator allow its clients to obtain real benefits and ROI from every engagement. To get started with your Outsourcing Opportunity Assessment, click here to schedule a free consultation.