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How Does Outsourcing Reduce Cost?

Updated: Oct 10, 2022

Outsourcing has become an easy and cost-effective technique, which is used widely in today’s digitization world. Developed countries prefer outsourcing their business processes to developing countries like India. Before going any further, we first need to know what exactly outsourcing means. Outsourcing is a process in which companies and organizations hand over work to outside vendors. Any work process which can be handled from the outside location of the organization can be outsourced. This process is also known as offshore outsourcing. Offshore outsourcing allows the organization to obtain high-quality services at a low operational cost.

There are three broad categories of offshore outsourcing:

  • Business Process Outsourcing BPO: it deals in back office and front office outsourcing.

  • Infrastructure and Technology Outsourcing: it deals with networking and technology services.

  • Software Outsourcing: it deals with the development of software services.

It can be done for processes like customer care support, inventory management, payroll and so on. A lot of call centers also outsource their work. Outsourcing of work is also done for content writing, data entry, editing services, typing work, image manipulation services, transcription and data conversion services.

India is the number one country providing efficient offshore outsourcing services to their clients; it provides outsourcing services in almost all the areas of outsourcing. Apart from India, other countries which are efficiently working in the field of offshore outsourcing services are China, Russia, Egypt and so on.

Why and when do we need Outsourcing?

Outsourcing of one’s business functions and activities helps one to concentrate well on one’s core functions and helps control costs. While working if the following questions come to your mind, then you should outsource your work:

  • Are we working at the best possible favorable cost?

  • Are the available resources utilized to the fullest efficiency?

  • Whether the current available resources are able to support new technology and fight the market competition?

  • Is there any other efficient way to handle these processes more professionally and quickly?

  • Does the organizational team have the professional expertise to deliver efficient work?

  • How can we cut down the recruitment and training costs?

Benefits of Outsourcing

Why has it become such a popular tool for diverse businesses around the world? It is so because it has a number of benefits attached to it. These benefits are listed below:

  • Cost effective: The most important benefit is that it allows one to get the work done at a very low cost and in a much more efficient way. There is a vast difference in the wage patterns of the western developed countries and the developing companies. The kind of work which is done in the west for a very high price, can be obtained at a much cheaper rate in the developing countries like India, the difference varies to up to 60%.

  • Higher level effectiveness: Outsourcing work not only reduces the efficiency and quality of the work. It is done to people or organisations which possess greater knowledge of the work and have vast experience in that field. This factor automatically raises the standard of the work, and it can be done in a fast and efficient way.

  • Saves on investment: One does not need to spend extra on developing infrastructure. When the work is outsource, the partner who takes over the out sourced work, make necessary infrastructural changes, as per the requirement of the work.

  • Cost cutting on training and recruitment: When a particular type of work is outsourced, then the company or organisation does not require hiring skilled people for it. There will also be no need for arranging for training programmes for the same. The work will be handed over to people who are already experts in that trade. This will also bring in efficiency an quality in the work.

  • Round the clock work: It has a great time zone benefit. There will be difference in the time of one’s country and the country where the work is outsourced. For example if an American country assigns work to a Indian country the time gap is of twelve hours. One can assign work and relax, as the work will be done by the time one wakes up next morning. Therefore work will be going on round the clock; this system is also beneficial for week off days also.

  • Faster results: As doing everything by oneself, reduces the efficiency of the organisation, as a lot of things require attention. But when outsources its functions or work, it becomes easy, as part of the burden is shared by the outsource partner. This enables, quick and fast development of ideas into concepts, and also helps in faster delivery of the products, ideas and concepts into the competitive market.

  • Overcomes fluctuation in work force: Many times there are fluctuations in the work force, when there less availability of workers to work on an assignment; this happens especially during the holiday seasons and festive seasons. Outsourcing the work enables to control this problem, as work force will be available round the clock to work on the assignments.

  • Tap Talent: In the developed countries there is shortage of specific skilled workers, either there is a shortage or they are available at a very high cost. Therefore outsourcing the work in the developing countries enable access to large number of skilled people who are efficient and proficient in English, they are available for work at a very low labour cost.

  • Risk Management: A hidden benefit of outsourcing is that if a company by any chance faces problems due to natural calamities, technical crisis or market fluctuations. Then the offshore outsource partners can still keep working on their assignments. This especially beneficial in bringing back the company back on track.

Although outsourcing work has become one of the leading mantras for businessmen worldwide and is well appreciated for its numerous benefits; it is essential for one to be careful in outsourcing ones work. The following things need to be kept in mind while outsourcing any type of work:

  • Security policy: if one desires to outsource ones work and functions to other partners. Then one should have a strong and rational security policy for backup. Security policies should take care of data classification, which can differentiate between sensitive and common data. The authorities and managers of the organisation should develop clear policies to set up guidelines and standards for the work process and data security.

  • Selection of outsourcing partner: Selection of the right outsourcing partner or vendor is very important. The partner to whom you want to outsource your data should be loyal to you. It should abide strictly to all security policies and guidelines of the organisation. He should ensure that there will be no data leaks and copy from their side.

  • Protection of data: Before outsourcing the work to any vendor one should develop ways and techniques to monitor the database. It should also use application which would protect the data from getting tampered. Devices such as firewall should be used to prevent exploitation and abuse of sensitive vulnerable data. Also make sure that the vendor to which you are outsourcing the work also possesses such security software and applications to prevent misuse of the database.

  • Training: Before outsourcing the work ensure that the people who are going to work for you from the vendor’s side are knowledgeable and familiar with techniques and applications regarding how to protect and handle sensitive data. Also ensure that regular training and skill upgradation is done in regard to these employees from time to time. It is essential that the team of the vendor who are going to work for you are updated with the latest security and privacy tools, to secure the data of your organisation.

  • Monitoring: Before outsourcing any data to your outsourcing partner, develop strategies and methods of regular monitoring for the partner organisation and its employees. Also remember that never provide access of all the data to them at the same time, it should be a step by step process and should be monitored very carefully for any leaks, tampering; and efficiency and quality of the data.

  • Security audits: It is very essential to conduct regular data security audits. The audits will bring into light the loopholes and issues related to data security. It will also identify vulnerable database, applications which may hamper the organisation as a whole. This will also help in the identification of the devices which are threat to the security of the database. Regular security audits will assist in development of more efficient security measures and guidelines.

  • Prevention Technology: Before outsourcing any work to the partners, find out what type of prevention technology they use, to control the flow of data, what strategies are employed to prevent leakage and tampering of data and so on. Also ensure whether the employees abide by all the guideline and policies laid down by your partner organisation. Find out what and which type of technologies they use to prevent sensitive data from getting emailed or copied through devices like power banks, pen drives and so on.

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