Written by ? Cory R. Lewkowitz ? President
Most people in business are familiar with the term ?outsourcing? as it applies to labor. The more common reference involves the hiring of temp workers rather than permanent employees. Similar to this idea, but focused more on an entire business function or process, is the concept of business process outsourcing. While not focusing on a particular position or job, business process outsourcing takes an entire area of a company, usually administrative in nature, and lets a third party manage the details in coordination with the company?s management.
Soda Production Example
For example, a pop soda company may want to focus its energy and resources on creating new products as well as producing sales and entering new markets. Managing distribution of existing production and goods is a required function, but it is not a core process of the soda business. By outsourcing the business process, the company can let a third party manage the actual shipping of the sodas in an efficient manner while keeping its own soda company people focused on generating new idea or new revenue.
Other common areas companies will transfer over to business process outsourcing can include the necessary but mundane administrative processes of personnel management, accounting, information technology support, and even administrative technical support such as phone systems and secretarial work.
Direct and Indirect Benefits
Business process outsourcing has multiple pros that a company could find very interesting. Obviously, the main one tends to be a refocusing of business resources on what a business is good at rather than wasting them on indirect process. However, the benefits extend beyond just a re-utilization of labor.
Efficiency can be another big benefit. Most companies understand they need administrative or secondary services. However, they may not necessary understand how to run them in the most efficient manner. Too often, companies just hire more people to take on the tasks as necessary. A third party outfit may have the same process streamlined down to a very efficient system, resulting one-third less the cost, even when charging a client for a profit.
Additionally, many outsourced business process vendors offer scalable systems. So as a company client may grow or shrink, the services provided can change accordingly. If internal, a company would have to deal with terminations as well as hiring, which can take a long time. Third party scalable systems can be tailored up or down, as needed, in a very short period of time. In most cases, the company client just needs to pay the adjusted service subscription for the change in services provided.
Many outsourced business processes are based overseas. This allows company clients to take advantage of currency differences to enjoy significant savings. The same work and service quality can frequently be obtained in another country for a fraction of the cost it would incur at home. That means more financial resources available and a smaller operating margin for the client company.
Conclusion
Business process outsourcing can be a powerful tool for companies that want to remain nimble while keeping necessary costs to a minimum. While it?s not a perfect tool for every situation, it offers significant benefits for cost and operational flexibility, especially when growth and resource demand fluctuates heavily. For business that needs such scalability, this approach works very well.
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