Many firms evaluate the benefits of outsourcing during an economic downturn. Outsourcing is the process of using independent firms to meet the needs of the organization. The most common tasks for outsourcing are self contained business processes that are generic in nature.
In general, only a subset of the entire process is sent to the outsourcing company. The primary company must retain ownership and management of the data. For example, payroll processing is often outsourced, but the actual reconciliation of the payroll costs and submission of remittances to government agencies and benefit companies is usually kept in-house.
There are three main benefits of outsourcing: reduced overhead costs, increased quality control processes, and improved productivity. Some types of services subject to outsourcing include purchasing, payroll processing, account payable and receivables, and collections. The change to outsourcing represents a huge organizational shift and careful communication with staff and shareholders is required to minimize the concern.
Of all the benefits of outsourcing, reducing operational costs is the most important. It is important to note that the primary source of savings from outsourcing is due to a reduction in staff. Most organizations eliminate data processing and supervisory positions with a transition to outsourcing. In addition to savings in payroll costs, the firm can also reduce the office space, heating, and operational costs associated with this department.
When negotiating an outsourcing contract, most firms add in performance and quality metrics. These benchmarks are tied to compensation, encouraging the firm to meet these performance levels. There are certain restrictions surrounding quality control processes in an employment relationship that do not exist in a business to business relationship. A correctly structured contract will result in a highly motivated outsourcing firm that will strive to meet all the requirements of the client firm.
Productivity and output improvements are additional benefits of outsourcing. This can be attributed to a focused work environment. Employees of an outsourcing firm are only working on one aspect of the business operations. They are typically well trained in this field and are able to achieve increased efficiency due to focus and skill level.
Another benefit of outsourcing is the ability of the firm to distance itself from the aggressive tactics of the outsourcing firm. This is particularly important in accounts receivable and collections. The primary firm can retain its image of a concerned corporation, while the collections department can ensure that clients pay for services rendered and minimize bad debt.