The first thing to take into consideration when deciding whether or not, to outsource, is outsourcing a good fit for your business? Honestly, I can’t think of any business they could lend some type of BPO (Business Processing Outsource) services into their mix of operations. Let’s go under the premise of outsourcing as a good business practice for you to engage in, how you know which type of firm to hire.
Outsourcing in today’s business environment seems to be a hot buzz topic, however, the subject of outsourcing in one form or another has existed almost as long as business itself is existing. If you stop and think about any time you bring in an outside vendor to conduct business activity for your business operations. Many businesses do this with legal and accounting services as well as a host of other services, for example, if you require a maintenance job and you call in a contractor to complete that task, in essence, you are outsourcing.
What has changed in this conversation is that now, many people are moving towards long-term contractual outsourcing agreement. Enterprise companies have been doing this for years in fact, today Xerox is primarily a BPO (Business Process Outsourcing) firm. A great deal of their outsourcing is domestic and domestic outsourcing can have significant advantages. These advantages can include a greater infrastructure, cultural competency, greater legal compliance and a higher comfort level with your clients in dealing with somebody who’s domestic versus located offshore or internationally. Probably the largest downside to domestic outsourcing is the cost. The fees can range from four to five times as much as international outsourcing. There are a multitude of different approaches you can take. Below is a list of various outsourcing options:
A company that doesn’t have any employees and outsources their outsourcing.
A combination of both international and domestic outsourcing.
Outsourcing Bulletin Boards
Freelancer and Odesk are two of the largest outsourcing of this kind.
I believe that the best combination when looking for an outsourcing firm is a Hybrid combination for a company that maintains a minimum of two offices. One office should be located in the country you’re doing business in and another overseas office. This type of combination can allow you the flexibility in your staffing when domestic helpers are required to very easily input and interject the type of requirements that you have. While at the same time these companies can take greater advantage in cost savings with emerging technologies and lower labor rates in developing countries. I believe this approach is the best to outsource. Let’s take a look at some of the other options that are available in a little greater detail.
Domestic outsourcing might have some competencies, however, the cost limitations with this type of service can be rather significant. To bring in this type of firm, you’re going to figure the hourly labor rates which could be at a minimum of $25 per hour. While you can expect that the technology that they’ll deploy will be good, a professional working environment along with professional management and most likely a top-notch phone system which could easily exceed $100,000, however, there are alternatives that might make a better financial sense for you.
A 100% offshore international outsourcing firm without a presence in the country you’re doing business in can present some limitations in both cultural competencies, compliances and performance issues. With this type of organization, it is very critical that you understand they have absolutely no need to comply with laws at all, however, if they’re conducting business activity on your behalf, you do have to comply with US laws. Any violation could lead the customer responsible for the vendor’s activities. An example of this could be the Do Not Call registry violations as well as anti-spam violations. Both of these hold up to $16,000 fine per incident. These penalties can be a part of simple ignorance and hiring an overseas vendor that may or may not be even aware of the complaint issues that could leave you open to significant vulnerability.
I know some companies that don’t have an overseas presence. They simply sell outsourcing services and book them through Odesk or some other type of outsourcing services and rebill them.
Outsourcing Bulletin Boards
While this might be an inexpensive way to get tasks done, often times it can prove to be unreliable. Generally speaking these are individuals that don’t have the resources to set up the appropriate infrastructure required to run such an organization. An appropriate phone system can run tens of hundreds of thousands of dollars, depending on the ability of organizations scale and appropriate growth. Emerging countries tend to have instability within this electric grid and infrastructure, a requirement for alternative electric sources. This is why having backup generators as well as UPS (backup battery) to run your infrastructure is a necessity. I know that in our offices sometimes, it will go as much as 12 hours without any electricity. Without having generators in place to run, it would be impossible to offer quality services to our clients.
The thing that I instruct our clients is to take a look at the level of revenue a particular task generates. Low generating activity should be done by somebody other than key employees within an organization, either entry-level staff or of outsourcing firm. Key employees in organization need to stay focused on high revenue generating activities. A simple way to look at it is to take into account when delegating work, is to consider how much is this employee making on an hourly basis. If you can get the same task done at a significantly lower rate than obviously, it’s better to delegate work out. Below is a basic formula to calculate how much an employee is making on an hourly basis:
The basic formula for this is:
Annual Salary/(40×50) = Hourly Rate
$100,000 / 2000 = $50 per hr
Now you’re earning $100,000 a year. In essence, you’re making $50. As a business owner you need to focus on what are the activities that can maximize your return on investment and take the task that does not produce high revenue and get those task performed by somebody. In essence, if you can double your output by bringing in another employee, at $10 per hour. Now you have two hours of output which is $100 and it only costs you $10 which means, now you’re making $90 an hour instead of the previous $50 per hour.
Look at the lowest revenue generating activity, that could be telemarketing, could be delegating social media task, such as LinkedIn and Facebook postings. Get these task out of your office certainly integrate them into your business model that hire a firm with a much lower cost structure that you can offer to do the work for you.
In closing, what I would like to do is, offer anyone that’s interested in a half hour free coaching consultation with me or one of our coaches to see how outsourcing might be able to integrate into your organization. Please contact my office.