STREAMLINING OPERATIONS - A Guide to Business Outsourcing
OUTSOURCING
In business outsourcing the client firm establishes a contractual relationship and hands over the responsibility of executing the business processes to a vendor. In other words, outsourcing is the sourcing of work across organizational boundaries. In outsourcing, the business processes are performed by a non- client entity, such as a vendor, supplier…..etc.
Outsourcing has become a major trend in human resources and other services over the past decade. It's the practice of sending certain job functions outside a company instead of handling them in house. More and more companies, large and small, are turning to outsourcing as a way to grow while restraining payroll and overhead costs.
How can you make it work for your business?
First, make sure the company you're hiring can really do the job. That means getting (and checking) references. Ask former or current clients about their satisfaction with the client. Find out what industries and what type of workload the firm or individual is accustomed to handling.
Also, make sure you feel comfortable with who will be doing the work and that you can discuss your concerns and needs openly. One outsourcing option is to hire independent contractors. Independent contractors can be more flexible and lower in cost than outsourcing firms. As with outsourcing firms, however, before hiring an independent contractor, make sure the individual you use can do the job. If an individual handles your outsourcing needs, you're dealing with an independent contractor.
ADVANTAGES OF OUTSOURCING
- Swiftness and Expertise:
Most of the times tasks are outsourced to vendors who specialize in their field. The outsourced vendors also have specific equipment and technical expertise, most of the times better than the ones at the outsourcing organization. Effectively the tasks can be completed faster and with better quality output
2. Concentrating on core process rather than the supporting ones:
Outsourcing the supporting processes gives the organization more time to strengthen their core business process
3. Risk-sharing:
One of the most crucial factors determining the outcome of a campaign is risk-analysis. Outsourcing certain components of your business process helps the organization to shift certain responsibilities to the outsourced vendor. Since the outsourced vendor is a specialist, they plan your risk-mitigating factors better
4. Reduced Operational and Recruitment costs:
Outsourcing eludes the need to hire individuals in-house; hence recruitment and operational costs can be minimized to a great extent. This is one of the prime advantages of offshore outsourcing
DISADVANTAGES OF OUTSOURCING
1. Risk of exposing confidential data:
When an organization outsources HR, Payroll and Recruitment services, it involves a risk if exposing confidential company information to a third-party
2. Synchronizing the deliverables:
In case you do not choose a right partner for outsourcing, some of the common problem areas include stretched delivery time frames, sub-standard quality output and inappropriate categorization of responsibilities. At times it is easier to regulate these factors inside an organization rather than with an outsourced partner
3. Hidden costs:
Although outsourcing most of the times is cost-effective at times the hidden costs involved in signing a contract while signing a contract across international boundaries may pose a serious threat
4. Lack of customer focus:
An outsourced vendor may be catering to the expertise-needs of multiple organizations at a time. In such situations vendors may lack complete focus on your organization’s tasks
KNOWING WHEN TO OUTSOURCE YOUR BUSINESS
- · The activity isn't central to generating profits or competitive success.
- · The job is a routine one that wastes valuable time and energy.
- · The task is a need that's only temporary or that recurs in cycles.
- · It's less expensive to have someone else do it than to do it in-house.
- · The activity can be done cheaper in-house, but drains resources that could be better used elsewhere.
- · The skill required is so specialized that it's impractical to have a regular employee do it.
- · The activity isn't one that people enjoy doing.
KEY AREAS TO OUTSOURCE WHEN STARTING A BUSINESS
Cost of sales:
Product inventory, raw materials, manufacturing equipment, shipping, packaging, shipping insurance, warehousing. A substantial amount of upfront money is needed to fund your initial product inventory for sale.
Professional fees:
Setting up a legal structure for your business (e.g., LLC, corporation), trademarks, copyrights, patents, drafting partnership and non-disclosure agreements, attorney and accountant fees for ongoing consultation.
Technology costs:
Computer hardware, computer software, printers, cell phones, PDAs, website development and maintenance, high-speed Internet access, servers, security measures, IT consulting.
Administrative costs:
Various types of business insurance, office supplies, licenses and permits, express shipping and postage, product packaging, parking, rent, utilities, phones, copier, fax machine, desks, chairs, filing cabinets—anything else you need on a daily basis to operate a business.
Sales and marketing costs:
Printing of stationery, marketing materials, advertising, public relations, event or trade show attendance or sponsorship, trade association or chamber of commerce membership fees, travel and entertainment for client meetings, mailing or lead lists.
STEPS FOR AN EFFECTIVE OUTSOURCING SUCCESS
1. Define clear objectives
2. Set realistic expectations
3. Count the costs
4. Understand and actively manage the risks
5. Objectively measure and track the benefits
6. Use an effective outsourcing model
7. Choose complementary business partners
8. Start slowly, build gradually
9. Monitor and evaluate your progress
10. Keep it personal.