This strategy allows companies to focus on core competencies, leading to increased competitiveness and productivity. In this case, all customer-facing inquiries or complaints with concern to its online banking service are handled by a third party. Meanwhile, outsourcing IT service desk functions was the top service exported in the information technology sector globally. Furthermore, a lack of communication between the company and the outsourced provider may occur, which could delay the completion of projects.
By outsourcing specific functions, businesses can lower their operational expenses. One of the most compelling reasons why companies engage in outsourcing is cost efficiency. Understanding these pros and cons is crucial for businesses to make informed decisions about whether outsourcing aligns with their strategic goals. Companies outsource to reduce production costs and increase efficiency. By recognizing these options, businesses can make informed decisions that align with their goals and resources, ultimately enhancing their efficiency and competitiveness.
What This Means for Your Company
These include project management software, CRM software, communication tools, email marketing software, social media management tools, and time tracking software. There are amazing tools and resources specifically designed to help business owners optimize their processes and improve efficiency. By ensuring you have qualified assistants to take care of everything, you can focus on brand development, long-term business strategy, and being the face of your business.
Before hiring a BPO company, vet its business practices thoroughly and include a commitment to moral practices in mutually signed contracts. Interviewing past customers before hiring a BPO company can help you learn about the quality control process that’s typically offered by the BPO company. For this reason, it is important to start slow with the outsourcing process and ask any BPO companies you’re considering hiring how they plan to mitigate this risk.
Why do Companies Choose to Outsource Work?
Apple has also recognized that outsourcing is about building relationships and ensuring that both parties benefit. The company that started with a humble desktop became one of the key innovators and then completely changed the world of music and mobile phone technology. When discussing revolutionary technology companies, Apple’s name needs to be at the top of everyone’s list. MySQL understood that success for them was through a GNU General Public Licence linked with an outsourcing strategy from day one. Opera eventually began as a separate company outside Telenor’s umbrella, but Oracle Software ultimately acquired it. Launched at the dawn of the internet era in 1995, Opera was initially a side project inside Telenor—one of Norway’s largest telecommunications companies.
- Meanwhile, outsourcing IT service desk functions was the top service exported in the information technology sector globally.
- Samsung utilizes outsourcing in both its software development and manufacturing to stay agile in the competitive consumer electronics market.
- Business process outsourcing (BPO) happens when a company outsources entire business functions to be handled by another company.
Information Technology Outsourcing (ITO)
Skype is another major company that resorts to outsourcing businesses, and they picked Estonia (East Europe) as a source of talent and brought on several developers to work on the product. Many business process outsourcing providers offer embedded market research services, giving clients a better understanding of customer behavior, pricing strategies, and regional trends. When you delegate non-core business functions—like backend support, QA, or logistics outsourcing—you free internal resources to focus on strategic initiatives. Instead of spending months recruiting niche talent locally, businesses can instantly access skilled engineers through their outsourcing partners. This is where outsourcing emerges as a strategic solution, offering businesses a way to access a global talent pool, streamline operations, and gain a competitive edge.
In Basecamp’s case, it wasn’t with development or skills, but rather their own internal business operations, human resources, and time. These individuals are seamlessly blended into their in-house support team, providing clients with improved response times at a reasonable cost. They’re one of the major companies that outsource and have been outsourcing non-core functions like admin and IT work for years. Outsourcing services are in demand all over the world, and relevant to businesses of all sizes. Strategic outsourcing enables companies to spread risk by not relying solely on internal teams, especially during times of disruption or rapid change. For instance, a retail company might focus on scaling digital channels and supply chain management, while their outsourcing partners handle app maintenance or customer support.
Another sign is if you feel like you have things you want to do in your business, but you can’t find the time. But as long as you place a lot of importance on customer focus and train your staff accordingly, you can ensure your customers are still treated the same way you would. Without getting incredibly specific, and taking the time to monitor the customer focus of your assistants, it can fall by the wayside. Obviously, you will put the most care into dealing with your customers, but handling all customer communication can take a lot of time. No matter what industry you’re in, without happy customers, you have no business.
When Staff Augmentation is the Better Choice (Most Software Development)
For instance, signing contracts with other companies may take time and extra effort from a firm’s legal team. A law firm might use cloud services for file storage, accessing technology without high investment. A computer maker might buy parts from other companies to save on shopify bookkeeping 101: detailed guide production costs. This strategy may also lead to faster turnaround times, increased competitiveness within an industry, and the cutting of overall operational costs. When a company uses outsourcing, it enlists the help of outside organizations not affiliated with the company to complete certain tasks. So now that you know why companies outsource, how can you go about outsourcing yourself?
How Outsourcing Reduces Business Costs: Strategies and Examples
Matt Watson is a serial tech entrepreneur who has started four companies and had a nine-figure exit. I recently created a video breaking down exactly when to use each model—based on 20 years of building successful offshore teams. Traditional outsourcing often requires starting from scratch with each new project, losing accumulated knowledge and context. You can typically onboard additional developers within 1-2 weeks, compared to 4-8 weeks for traditional outsourcing project setup. Staff augmentation allows faster scaling because you’re adding individual team members rather than negotiating new project contracts.
Focus on Core Business Activities
Let’s now illustrate the reasons to outsource with outsourcing examples. One fact is clear, though—outsourcing, when done right, can help companies become significantly more efficient. In most cases, it might be a combination of factors, such as skill, cost, capacity, and time to market. As you can see, there are many different reasons why companies prefer to outsource.
- One of the main reasons why firms are outsourcing is that business service provider companies know the importance of investing in modern technologies.
- For example, companies can outsource their marketing, payroll, human resources (HR), customer service and supply chain management functions.
- Outsourcing involves hiring external parties to perform tasks or create goods, often cheaper than in-house efforts.
- For software development, Cisco also collaborates with Eastern European companies for IoT and network automation software.
In addition, many other costs can be saved by hiring a BPO company, including office rental costs, employee-used software fees and other overhead costs. For example, companies can outsource their marketing, payroll, human resources (HR), customer service and supply chain management functions. From reducing costs to accessing specialized expertise, the reasons why companies engage in outsourcing are diverse. Beyond cost savings, companies engage in outsourcing to access a global talent pool. Outsourcing allows businesses to lower operational expenses by leveraging labor markets in countries with lower what is the formula for the profit margin ratio costs of living, all while maintaining service quality and efficiency.
Outsourcing provides significant cost savings and operational efficiency by delegating non-core tasks to external vendors. In 2023, a Deloitte survey found that India, Poland, and Mexico were the top countries for outsourcing shared services. Outsourcing internationally can help companies direct material inventory benefit from the differences in labor and production costs among countries.
The outside organizations typically set up different compensation structures with their employees than the ones used by the outsourcing company, enabling those organizations to complete the work for less money. Outsourcing involves hiring external parties to perform tasks or create goods, often cheaper than in-house efforts. There are specific tasks that you shouldn’t outsource or don’t need to outsource. There needs to be a healthy balance between the two, and if you don’t feel like you’re getting things done, it’s time to outsource. You should be spending time working ON your business, not just IN your business.
Frequently Asked Questions About Staff Augmentation vs. Outsourcing
These are essential aspects of every company, but also those that are relatively easy to outsource. Research suggests that when companies employ staff in the traditional 9-to-5 office environment, they are only productive for an average of 3 hours out of 8 hours per day. You can have them track their time and focus on their assigned tasks, getting things done much quicker than salaried employees trying to multi-task.
Top 7 reasons why companies outsource: Real facts & stats
Below are our findings on why companies choose to outsource. So, in this article, you will discuss, from why companies outsource to the best practices used by firms for their project—backed by real stats and insights. It is like gaining access to world-class talent, cutting operational expenses by almost half, and bringing your ideas to life faster. But not sure if it’s really helpful or not and want to know why companies choose to outsource work. One often-cited example is the outsourcing done by the manufacturing industry in America, which has, to a large extent, moved production of its goods to other countries.
