The popular perception is that outsourcing is carried out to save costs. However, the truth is that companies today outsource for better efficiency and superior quality in all processes across verticals. The other advantages to outsourcing include optimized cost of technology, risk mitigation, scalability of resources and better geographic reach. It is no surprise that revenues of global outsourced services industry are up from $45.6 billion in 2000 to $104.6 billion in 2014. Outsourcing to a trusted and reliable BPO expert can significantly enhance business function and productivity.
Earlier it was Information Technology Outsourcing (ITO) that formed a major part of the global outsourcing basket. Today, Business Process Outsourcing (BPO) is a major contributor towards the industry’s revenues. In 2014, revenues from BPO stood at $76.1 billion while ITO contributed just about $28.5 billion. This just goes to show how companies have realized that improved processes translate into better functioning and greater profits in the long run.
However, emulating your competitor when it comes to outsourcing might not be the proper way. It is important to choose the correct model for outsourcing your processes, especially in case of your internal functions. Handling processes of a firm needs the right expertise and operating efficiencies. Your firm’s locations and the way you want the sourcing to be managed would also influence your decision while choosing a model. In this regard, listed below are eight models for sourcing that can be adopted. Choose one that best suits your firm’s requirements while ensuring optimal usage of resources, lower costs, and efficient operations.
8 Sourcing Models to Transform Your F and A:
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This involves outsourcing the whole process to the service provider (without retaining any major functions in-house). Here, you agree to pay a price for the services provided while the provider has the free hand in running the processes. You monitor the performance of the process without interfering in the way it is carried out. It is a myth to assume that a process can be totally outsourced. You might still need to carry out certain functions such as maintaining client and supplier relationships. However, since a greater degree of control is given to service provider, this model might be suitable for only small firms whose processes are simple, measurable, and traceable.
Joint Venture/ New Firm:
Under this model, you enter into a joint venture with the service provider wherein both of you provide the needed resources to start a new business. This would include personnel, capital, and intellectual property. In essence, you would be jointly managing the outsourced part of the business. Apart from assets, you would be sharing profits and losses with the service provider. This model might be best suited for companies that are entering a market having intense competition.
This model is currently gaining popularity. Under this model, you outsource to service providers in your own country, nearby countries or countries that share a border with the country where your firm is located. The benefits might be greater understanding of culture, laws, economic and political situations that influence the business. Firms also feel that the chances of intellectual property theft would be low. However, there are some disadvantages to near shoring including higher costs when compared to offshoring to countries with cheap labor and non-availability of superior expertise.
When you establish a wholly owned subsidiary for performing the outsourced functions, it is known as the Shared Services model. This model has many issues such as difficulty in managing personnel and higher costs when compared to the traditional outsourcing model. In case of traditional outsourcing, the service provider would readily have all the resources needed to set up and perform the outsourced functions. Even if the resources were not available, he would have the expertise of getting them quickly.
Here you chose multiple service provider for each of your functions. This model gives you the flexibility of choosing the best service provider for each of the processes. The risk of outsourcing is also diversified while you can bargain on the price. However, multi sourcing is very complex. Also, sharing of resources across service providers is a hindrance.
Under this model, you choose a service provider who specializes in handling services of a particular industry (that is yours). This way you can get a service provider possessing better knowledge on how processes in your industry work. Processes would become smother and quicker. However, the disadvantage would be higher costs as specialized knowledge would mean more pay.
Here you outsource to service providers who specialize in functions such as HR, Finance & Accounting and payroll processing. These service providers would be providing outsourcing services across industries. The advantage with this model is lower costs. However, the service provider might not know problems that are specific to your industry.
Build and Operate:
Here you get the help of the service provider to set up a new center. The service provider would assist you in setting up the real estate, infrastructure, and resources and would help you in running the same after it is set up. This is better than the Share Services model where you need to do everything on your own. However, you would be incurring additional costs when compared to the traditional outsourcing model and would need to share profits.
Outsourcing can be profitable only when you choose the right model that suits your firm. This becomes even more critical for BPO as the efficiency of core processes can have significant impact on your competitiveness and profitability. Ensure that you choose your BPO provider after thorough research, especially for F&A functions.