What makes outsourcing cost effective

As many routine IT tasks become automated, the global labour pool for IT outsourcing will continue to shrink, and the demand for more highly skilled individuals will rise. This further diminishes the prospect of outsourcing these tasks to significantly lower cost labour markets.

As overseas outsourcing drops, near-shoring and in-sourcing i. In the financial services sector, organisations are actively marketing on-shoring as a deliberate strategy to positively differentiate their customer service offering. As such, companies are now seeking near-shore outsourced solutions where costs may be contained, but where high quality talent can be found, and where fewer logistical, cultural and language barriers exist.

Client companies are increasingly in direct competition with outsourcing providers for skilled talent, but struggle to offer the same flexible working arrangements and career development challenges desired. As full-time positions in client organisations become less secure, more stressful and offer less development opportunities, talent is increasingly attracted to the outsourcing service providers.

When such tasks are outsourced, the small business gains access to new technology that can help it compete with larger companies. Outsourcing is predicated on the understanding—shared by business and vendor alike—that such arrangements require quality service in exchange for payment.

The same cannot be said for internally provided functions. Some of the major potential disadvantages to outsourcing include poor quality control, decreased company loyalty, a lengthy bid process, and a loss of strategic alignment.

All of these concerns can be addressed and minimized, however, by companies who go about the outsourcing process in an informed and deliberate fashion. Unless you have a lot of resources to expend, it may make sense to prioritize outsourcing projects based on the number of benefits you expect to gain from the arrangement.

For example, company employees may have a better understanding of the industry, and their vested interests may mean they are more likely to make decisions in accordance with the company's goals.

Indeed, most analysts discourage companies from outsourcing core functions that directly affect the products or services that the business offers.

Once a company has made the decision to outsource, there are still a number of factors it must consider in making a successful transition and forming a partner relationship with the vendor. First, the company should determine what sort of outsourcing relationship will best meet its needs. As Ethel Scully noted in National Underwriter, the company needs to obtain the support of key personnel during this time.

Many companies encounter resistance from employees who feel that their jobs are threatened by outsourcing. Scully suggested forming a team consisting of an outsourcing expert, representatives from senior management and human resources, and the managers of all affected areas of the company to help address employee concerns about the decision.

Once your business has decided which functions to outsource, it should initiate a search process that utilizes referrals from other companies and service-provider directories. You can then begin contacting potential vendors and ask specific questions about the services they provide and their abilities to meet your company's unique and specific needs. Ideally, the vendor you select will have experience in handling similar business and will be able to give all of its clients' needs the priority they deserve.

During this period, you should also reexamine your own company culture and business needs to make sure that the outsourcing arrangement under consideration is a good fit.

Many outsourcing experts counsel businesses to select vendors that can effectively integrate all their outsourced business functions so that they do not have to find individual vendors for each function. Finally, you should select a vendor you trust in order to develop a mutually beneficial partner relationship.

It is important to develop tangible measures of job performance before entering into an agreement, as well as financial incentives to encourage the vendor to meet deadlines and control costs. The contract should clearly define responsibilities and performance criteria, outline confidentiality rules and ownership rights to new ideas or technology.

It should also include a means of severing the relationship if the service does not meet your expectations. Since the vendor is likely to have more experience in preparing outsourcing agreements than a small client company, it may also be helpful to consult with an attorney during contract negotiations.

Biggs, Maggie. January 24, March 15, September 15, There are a wide variety of functions you can outsource, including, but not limited to:. Accounting and payroll is a challenging and complex area for most businesses. You need specialized software and staff that can track a variety of variables to ensure that everyone is paid the right amount on time. Finding reliable and affordable help in this area can save you significant time and money.

Outsourcing accounting can also increase controls and reduce fraud while giving you access to industry-leading software and services without the upfront costs. Human Resources is another area that has a lot of moving parts. It not only includes hiring and firing, but also administering benefits, setting up retirement plans, and more.

However, these wage differences do not necessarily translate to differences in productivity. This means you may be able to achieve the same productivity by outsourcing software development operations to a country with lower labour costs. If you intend to outsource your software development operations to boost efficiency and reduce costs, it may help to use the following approach.

The first step in the outsourcing process is to define your goals. Your project managers should speak with software development staff and determine which tasks must be completed in-house and which ones can be outsourced to a third party. Once these goals have been defined clearly, you can start seeking suitable outsourcing companies.

As mentioned earlier, there are many different types of outsourcing depending on where the third party is located. If you do not wish to outsource your operations abroad, you may be able to find third party providers within your own country.

It is possible to save on labour costs by seeking out a third party in another country. However, you should be aware of cultural and time zone differences and how they may impact your operations.

This is especially vital for companies that wish to outsource their SaaS operations. The next step is to research the best companies to outsource your operations to. Look for different companies that have experience with software development and learn what their past clients have to say about them.

Choosing an experienced and reliable software development partner is vital, as they can help you build a good reputation with your clients. The key to outsourcing successfully starts with the right partnership. Please get in touch with us and schedule a free discovery call to learn more about smarter outsourcing. Vote count: 2.