In today’s competitive business landscape, strategic business process outsourcing enables companies to delegate the work that isn’t core to their brand and concentrate on what sets them apart. The right outsourcing business strategy can improve efficiency, reduce costs, and accelerate growth—particularly for ecommerce businesses looking to scale. IBM, one of the world’s leading technology companies, has a long history of leveraging outsourcing to enhance its business operations.
Many large corporations have eliminated their entire in-house customer service call centers, outsourcing that function to third-party outfits located in lower-cost locations. For instance, signing contracts with other companies may take time and extra effort from a firm’s legal team. In addition, security threats can occur when another party has access to a company’s confidential information and that party suffers a data breach.
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- If a widget company wants to build a webiste, it would make sense to outsource the job to someone (or a web dev company) who can build a website quickly and properly.
- Let’s say someone is a cosplayer who is scheduled to attend an event next weekend.
- Companies might find that they can streamline production and/or shorten production times because the third-party providers can more quickly execute the outsourced tasks.
- This move enabled IBM to streamline its HR processes, reduce administrative costs, and focus on strategic HR initiatives.
Language barriers, cultural differences, and time zone discrepancies can complicate interactions between a client company and its external service provider. This flexibility, whether through onshore or offshore outsourcing, allows you to expand or contract your operations as needed. By outsourcing peripheral functions, ecommerce businesses can allocate more time and resources to these strategic activities that directly drive growth. One of the primary reasons companies outsource is to reduce business expenses, especially labor costs.
Human Resources
Outsourcing business functions is sometimes called contracting out or business process outsourcing. Cost savings vary significantly based on the function outsourced, the geographic location of the provider, and the scope of work. Outsourcing can reduce expenses by streamlining operations and offering access to specialized talents without the full-time overhead. A WEF estimate suggests that by 2030, 92 million jobs could be performed fully remotely, creating new potential for businesses to outsource roles—from software development to customer support—across borders. Building and maintaining a solid relationship with the outsourcing service provider is necessary for long-term success.
This team worked closely with the service providers to ensure a smooth transition and minimize disruptions to business operations. Because of outsourcing, many businesses have been able to reduce expenses, gain access to specialized expertise (such as outsourced logistics hr support), improve overall performance, and achieve cost efficiency. Ecommerce brands outsource engineering processes to develop packaging, optimize store performance, or integrate third-party tools—without hiring full-time engineers. This type of outsourcing involves hiring independent contractors or outsource programming external companies to handle various engineering tasks, from design to implementation. To mitigate these risks, thoroughly vet service providers to ensure compliance with data protection laws, and implement necessary security protocols. A managed service provider—tasked with remotely managing IT infrastructure and systems—must be trustworthy and equipped to handle sensitive information securely.
Products
Outsourcing manufacturing operations can provide a competitive advantage by allowing you to focus on your business’s design, ecommerce marketing tactics, and other core aspects. Companies often outsource as a way to lower costs, improve efficiencies and gain speed. Companies that decide to outsource rely on the third-party providers’ expertise in performing the outsourced tasks to gain such benefits. The underlying principle is that because the third-party provider focuses on that particular task, it is able to do it better, faster and cheaper than the hiring company could.
If they onshore the project, they would likely communicate with a business close by or hire independent contractors. When a company uses outsourcing, it enlists the help of outside organizations not affiliated with the company to complete certain tasks. The outside organizations typically set up different compensation structures with their employees than the ones used by the outsourcing company, enabling those organizations to complete the work for less money. This ultimately enables the company that chose to outsource to lower its labor costs through the combination of less pay and fewer benefits.
For example, an ecommerce business in the US might nearshore its customer service operations to Canada to ensure representatives work in similar time zones as customers, while reducing operational costs compared to fully domestic operations. Nearshoring offers a strategic middle ground between domestic outsourcing and offshore outsourcing by delegating business functions to providers in neighboring or nearby countries—usually in the same time zone or region. This approach combines cost savings without sacrificing close communication and time zone differences. Different types of outsourcing providers can benefit companies in specific ways, from simple data entry to complex projects like product manufacturing. However, it is important to carefully evaluate the risks and benefits of outsourcing before making the decision to outsource.
- Effective communication is key in outsourcing, particularly offshore outsourcing.
- This partnership allowed IBM to leverage TCS’s expertise in managing large-scale IT operations, resulting in significant cost savings and improved efficiency.
- In practice, a company today can outsource every step of its operations, whether in manufacturing or the provision of services, to an external contractor.
- Outsourcing is a critical aspect of modern business strategy, offering a range of benefits.
- The decision to give certain functions to an outside service provider should never be taken lightly.
Outsourcing trends for 2025
In the early 2000s, IBM faced significant challenges, including the need to reduce costs and improve efficiency while maintaining high-quality service delivery. To address these issues, IBM embarked on a strategic outsourcing initiative, partnering with various service providers to manage non-core functions. Information technology (IT) outsourcing involves hiring third-party providers or external companies to manage IT functions, from basic tech support to more complex operations like software development and cybersecurity.
Advantages of Outsourcing
With outsourcing, one or more tasks or processes are usually given to an external partner. Under certain circumstances, however, some tasks be performed internally (in-house outsourcing). For example, if you have given a task to a different area of your company, or to a department which specializes in it, this is commonly known as internal outsourcing.
Larger enterprises usually have their own research and development teams, but smaller companies may not. Additionally, KPO enhances cost efficiency by leveraging external expertise to reduce operational costs while allowing organizations to focus on their primary business activities. Many businesses have successfully adopted outsourcing processes into various aspects of their logistics and supply chain operations. Outsourcing (or out sourcing, as some refer to it) all or part of these functions can improve efficiency and in some cases, reduce costs. Additionally, outsourcing can provide a competitive advantage by accessing specialized expertise and technologies. In addition to cost savings, companies can employ an outsourcing strategy to better focus on the core aspects of the business.
This trend enables ecommerce entrepreneurs to access specialized expertise from anywhere in the world, creating more flexible team structures that combine in-house capabilities with outsourced specialists in a seamless workflow. Maintaining quality across outsourced services can be challenging, especially when you rely on outside teams to represent your brand. Offshore outsourcing requires careful consideration for successful implementation. With 44% of core job skills expected to shift within just five years, the World Economic Forum (WEF) reports a growing need for continuous reskilling. This directly impacts outsourcing partners, who must keep pace with technological change and evolving client demands.
Nurture outsourcing relationships
When a company hires a photographer to take professional images of its products to be featured on a website, the business is outsourcing the creative process to that photographer. The closer the third party is to the client company, the less time and cultural differences will make an impact. Because application development is often an asynchronous process, being tightly scheduled isn’t the top priority, and clients seeking that work might prefer offshoring to onshoring. For example, they outsource because they’re unable to hire in-house, full-time employees with the specialized skills and experience needed to perform certain jobs. Companies should frequently reassess their relationships with outsourcing vendors and explore more effective partnerships with other potential vendors.
One often-cited example is the outsourcing done by the manufacturing industry in America, which has, to a large extent, moved production of its goods to other countries. In turn, higher-skilled manufacturing jobs, involving robotics or precision machines, have emerged at a greater scale. Outsourcing internationally can help companies benefit from the differences in labor and production costs among countries. Price dispersion in another country may entice a business to relocate some or all of its operations to the cheaper country in order to increase profitability and stay competitive within an industry.
Artificial intelligence (AI), remote work, and changing team structures reshape how businesses approach external partnerships. According to Grand View Research, the global business process outsourcing market is anticipated to reach $525.2 billion by 2030, growing at a compound annual growth rate (CAGR) of 9.4% since 2023. This growth reflects the increasing strategic importance of outsourcing across industries. IBM conducted a rigorous vendor selection process to identify the best service providers for each function. The company evaluated potential partners based on their expertise, track record, and ability to deliver high-quality services. The disadvantages of outsourcing include communication difficulties, security threats where sensitive data is increasingly at stake, and additional legal duties.
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From IT support and customer service to manufacturing and digital marketing, outsourcing allows entrepreneurs to stay lean while scaling up. IBM negotiated detailed contracts with each service provider, outlining the scope of work, performance metrics, and penalties for non-compliance. The subject matter and the duration of the service provided is recorded in a contract. The parties involved often agree on a service level agreement (SLA) to be able to concretely control the contractual relationship in terms of reaction times and service quality. Now that you know the pros and cons of outsourcing, some real-world examples of outsourcing, and the possibilities outsourcing can offer your business functions, you can determine if outsourcing is a good choice for the company.
By understanding and leveraging these key aspects, models, relationships, and services, businesses can make informed decisions about outsourcing and maximize the benefits it offers. If a company is small, but planning to launch a new product and expects plenty of inquiries, the business may consider outsourcing the chat or voice calls to a third-party customer service representative. This representative can be a freelancer or an employee of a BPO call center or BPO providers. By outsourcing, companies could free up resources (i.e., cash, personnel, facilities) that can be redirected to existing tasks or new projects that deliver higher yields for the company than the outsourced functions. The increasing use of AI assistants is one trend where outsourcing will play a significant role. More and more, enterprises are using business-level AI assistants to automate certain processes.