What Is Outsourcing And Why You Should Use It


Outsourcing is the process of contracting services to another party; individual or agency for the purpose of attaining comparative advantages and economies of scale. Outsourcing services is nothing new. Many businesses were outsourcing as early as the 1970’s primarily as a strategy to streamline costs. But in the 1990’s when companies in Silicon Valley entered third party service arrangements with technology companies from India, outsourcing became a by- word in business development.

But it is not just the big companies that are outsourcing services. Small businesses; those with limited access to capital or tight funding greatly benefit by outsourcing services to virtual assistants. Alternatively referred to as freelancers, telecommuters or home- based workers, virtual assistants are people who work online from a remote location, usually their homes. In fact, even the large- scale companies in the United States have been integrating virtual assistants in the workforce since 2014.

So what are the benefits of outsourcing and why should you use it?

  1. Reduce Costs of Business

The primary reason companies outsource services is to reduce the costs of business.

Outsourcing reduces the costs of business by capitalizing on prevailing comparative cost advantages. In outsourcing, the most significant comparative cost advantage lies in labor.

The average wage rate of a full- time employee is $20 per hour in North America and $18 in Australia. You also required to pay them government mandated benefits, company benefits and other bonuses.

In addition, a full- time employee carries an incremental cost to your monthly operations. You have to allocate funds for additional rent, Internet bandwidth, power consumption, utilities and office supplies.

It is estimated that the total cost of hiring a full- time employee is double his basic salary.

By contrast, you can hire a Virtual Assistant for $7 to $10 per hour. Because a Virtual Assistant is technically self- employed he is accountable for his business expenses and you do not have to pay him government mandated and company benefits.

  1. Increase Productivity

Outsourcing increases your business productivity in three ways:

  • By outsourcing non- essential tasks or those that do not fall under your core competencies, you are able to focus your attention on the core functions of your business.
  • Outsourcing service providers including virtual assistants are paid per productive hour; often these are subject to the accomplishment of performance milestones. You can be assured they will work to achieve these milestones.
  • Outsourcing is not limited to non- essential tasks. The outsourcing industry has grown into a $115 Billion industry that has opened its scope of service offerings to include more specialized and highly technical skills.

In fact Business Process Outsourcing or BPO has sprouted new branches to categorize these new service acquisitions. These include Knowledge Process Outsourcing (KPO), Creative Process Outsourcing (CPO), Legal Process Outsourcing (LPO) and Resource Process Outsourcing (RPO).

  1. Improve Business Flexibility

Since the new millennium, the business environment has become more global but unpredictable.

The evolution of the Internet, the advances in digital technology and the increasing influence of social media have created a truly global economy. But harsh political, social and economic events have transformed the business environment into one that in volatile, chaotic and ambiguous.

In order to survive these highly unstable conditions, businesses need to shift from highly- structured and rigid modeling to more flexible and mobile approaches. Outsourcing is a strategy that encourages flexible and mobile business modeling.

With outsourcing, you can manipulate costs and business frameworks. Are you a company from North America who plans to incorporate 24/7 customer service? Outsource services to virtual assistants from the Philippines or India where talent is available in all hours because of time zone differentials.

  1. Hedge Versus Business Risks

If you plan to expand or scale your business but are unsure that the figures and statistics have validated this course of action, why not outsource the services you need to support your development plan?

With outsourcing, you can freely manage your risks because costs are lower and business modeling is highly flexible. If your current assets are no longer able to sustain additional volume of business without compromising quality of work and service then you may need to hire more people.

Calculate the volume of work capacity per person to determine how many virtual assistants you need to handle additional work. If the arrangement does not work or if readings show the expansion plan cannot be sustained then simply discontinue the outsourcing activity.

  1. Lower Employee Turnover Rate

In 2011, Yahoo! CEO Marissa Meyer initiated a program to have 10% to 15% of their workforce work from home. By 2014, many other US companies such as Xerox, United Health Group, American Express and Aetna have adopted the telecommuting strategy.

While Meyer eventually abandoned the program, the other companies found great success with adopting outsourcing solutions. Today, it is expected that 30% to 45% of US companies’ workforce consist of telecommuters.

The results of the program are impressive. The telecommuting program reduced costs per employee by $1,900 and productivity was higher by 13%. Best of all employee turn- over was significantly lower.

Adapting outsourcing solutions will generate the same results for your business.

  1. Build Strategic Partnerships

Contrary to popular opinion, outsourcing service providers are not just “hired guns” that once the project is over and they are paid, they will just move on to the next client.

Outsourcing service providers are also businesses that want to develop their enterprise. To do this, they must enhance their reputation by building their portfolio. They are not looking after “quick hits”; instead, they want long- term, mutually beneficial relationships with clients.

Thus, when you contract an outsourcing services provider or a Virtual Assistant, he is viewing it from the perspective of a strategic partnership where there are shared interests.

He does not view the contract as a covenant between a client and service provider but between partners. He wants you to succeed because he himself wants to succeed.

As we head toward the first quarter of the new millennium, the need to implement outsourcing as a strategy in your business will only continue to grow. The events that ushered the new millennium did not just change the world; they transformed it.

The New Economy is not a temporary situation; it is how the world will be in the next few decades: unpredictable and uncertain. Under these conditions, outsourcing solutions become more imperative in order to accommodate global business transformation.