Outsourcing is one of those terms that many people associate purely to call center work which is sub-contracted to an external group, local or offshore.
That’s very much a misnomer as this is only ONE business function which companies seek to streamline or optimize through use of external specialists who can save them money.
For as long as I can recall, small business owners have:
- handed their financial records to external Accountants and had them prepare their books
- wealthy people have handed their portfolios over to fund managers / financial advisers and asked them to get the returns they seek
- and business houses have used external groups to handle functions such as order processing
My first serious exposure to outsourcing was in 1980 when I started working in the computer bureau industry.
At that time, major companies were sending their accounting, payroll and technical data to computer bureau in order to streamline internal costs and avoid significant investment in facilities and staff, investments which could not be justified.
Now in those days, a computer was an extremely expensive product, in the case of mainframes many millions of dollars. Even mini computers cost hundreds of thousands of dollars. So sending your materials off to a computer bureau was not so much an alternative, rather that you had no choice.
A few years later when I moved into the Direct Marketing services sector, I discovered there were many well known companies with hundreds of thousands of customers running their entire business with only 2-3 employees – that every part of their business except for strategy and product selection was being outsourced. That was in 1987 – my first awakening to alternative business models!
This included graphic design of their catalogues, printing, mail processing, order processing, order fulfillment and customer service. They could have been described as “Virtual Businesses”, the term used nowadays to describe many online operations.
Virtual businesses are now commonplace
… and outsourcing is generally the mechanism through which it is being done.
The number of businesses adopting this model will continue to grow simply because every business needs to streamline its costs and channel their energy and focus onto what brings in the dollars.
That momentum is being driven to a great extent by developments on the Internet – with individuals and companies able to provide sophisticated solutions to others no matter where they are in the world.
Whilst many would prefer to maintain as many operations in-house as possible, it’s a fact that some things can be done more effectively from both a technical and people standpoint externally than they can internally.
For example, a construction program requires initial drafting services which may take 6 months to complete before actual construction can commence. Do you employ a team of 100 draftsman for 6 months or do you outsource that function to a specialist design team? Of course, you outsource it, particularly if it is a one-off project!
What if all the local drafting service companies don’t have the capacity to handle this function, do you split the task between several or do you go interstate or overseas and find someone who has a ready team able to do the task in total? Most probably the latter if you are looking for true efficiencies and being able to meet deadlines.
Unlike the old days when most outsourcing was done on a local basis, the trend is well and truly in place now to go where the best efficiencies are to be gained. If that means offshore, then that is what companies need to do in order to ensure better returns for their shareholders. Parochialism is something which should take a backseat, especially in a slow economy which demands that costs have to be managed effectively.
Issues like this are ones which company executives must confront every day. There’s no escaping the correct commercial approach which has to be taken.
The growth of the Internet has fueled the outsourcing business
Many web development tasks are often channeled outside (to local and offshore groups), payment processing handled by specialists regardless of where they are based, and even web hosting being handled by specialists in external countries.
Almost every major company operating online is using the services of companies based in multiple countries in one form or other. In our case, we use the support services of groups in the USA, Slovakia, Australia, Philippines, Netherlands, Singapore and Russia.