Why do businesses outsource processes?
by Andy Connell

27th September 2018

Businesses choose to outsource for many reasons. Some people believe that businesses are only after the tax break associated with outsourcing jobs, or “shipping jobs overseas”.

What is relevant to this argument, however, is that the corporate income tax is one of the highest a company will face. In addition, businesses cite many other reasons to engage in outsourcing:

  • To decrease costs: Outsourcing cuts down on costs for in-house labour, particularly for staffing and training, and for the work space to accommodate local employees. An outsourcing company physically located in a developing country leverages lower-cost labour markets. Finally, outsourcing enables businesses to use variable-cost models, like fee-for-service plans, instead of fixed-cost models that are required when retaining local employees.
  • To concentrate on key functions: Outsourcing allows businesses to hone in on their main offerings instead of company functions that aren’t directly tied to their core processes. For example, when outsourcing, the company won’t have to monitor the payroll accountant’s performance. Rather, it can focus its energies on highlighting its business differentiators and maximizing overall growth. In turn, these actions can boost a company’s competitive advantage and enhance its interactions with the value chain. Ultimately, the company can enjoy improved customer satisfaction and increased profits.
  • To achieve better results in noncore functions: Outsourcing companies specialize in what are considered noncore functions of other businesses, delivering world-class capabilities for its clients. In fact, an outsourcing company that invests in specialized processes and technologies can deliver cutting-edge breakthroughs to its clients. For example, a gaming design company may not want to pay for the latest payroll program on the market, but an outsourcing business that offers payroll services would likely make that investment to benefit its own performance, as well as that of its clients.
  • To expand their global presence: Some outsourcing companies can serve customers in multiple languages, around the clock, thus relieving the local company of the responsibility. Outsourcing companies can leverage their presence in multiple countries and keep the local company’s redundant divisions to a minimum. For example, WNS Global has 37 “delivery centers” across the world and specializes in business process management.
  • To enable flexibility: Companies that outsource their noncritical functions can act more quickly and more efficiently when managing the risks associated with introducing new products or services. They can also reassign their internal resources to more critical functions to help ensure better coverage and allocate responsibility.
  • To improve speed and efficiency: Companies that outsource processes are opting to let specialists handle those tasks, thus saving time, improving accuracy, and increasing their capacity. For example, a BPO that specializes in records management can automatically index documents, making them available for retrieval and keeping a company in compliance with legal requirements. This replaces manual data entry and storage.

Ryan Fitzgerald, owner of and realtor at Raleigh Realty, has extensive experience with BPOs. He says, “There are both pros and cons to creating an outsourcing process for your business. The obvious pros are that it saves you time and effort, which likely saves you money. There are only so many hours in a day, so you will want to focus the limited time you have on the work that makes you the greatest ROI (return on investment) on your best work.

“Another pro is that there is a good chance the person you’re outsourcing your projects to is armed with a better skill set for the specific goal you’re trying to accomplish. By outsourcing your work, you allow yourself the opportunity to be more productive and grow your business faster.

“One of the biggest cons is that you leave yourself exposed if you don’t do the work yourself. What happens if the person you’re outsourcing to moves away? What if they take your ideas and give them to other businesses you’re competing against?