The features behind Back Office Outsourcing
Outsourcing can be defined as sub-contracting or externalizing non-core activities
to another firm for the purpose of freeing-up any or all of cash, personnel, time, facilities thus reducing average unit cost and concentrating more on profit generating activity. Outsourcing can also be called as contracting out.
There are many reasons for outsourcing like enabling concentration on core business, cost savings, increase profit margin, reduce unit cost etc.
To put this in specific words, the outsourcing decision would be beneficial, if the following trend is seen in the firm/company.
1. If we employ more than 3 back-office workers.
2. If the back-office cost exceeds 10% of revenue
3. If managing the back-office workers, takes away major porting of the CEO or CFO's time.
4. If we end up spending more time on searching for qualified replacements.
5. If the data we get is not correct.
6. If there is decrease in customers.
7. If we are let behind in competition.
8. If the profits are less than projected.
9. If the turnover rate of back-office employees is more than 5% annually.
10. If the company growth is less than 10% per annum.
The above is a comprehensive list of when should the decision for outsourcing to be taken. When we are outsourcing our activities, we attain some advantages.
Save Money:
External service providers combine volumes of multiple companies and thus achieve economy in operation cost. This cannot be expected when the service is not outsourced.
Share Risk:
By diversifying the operations, the risk is shared.
Concentrate on core activities:
By outsourcing a portion of work, the management is left with more time to concentrate on business development and growth.
Quality:
When the job is entrusted to domain professionals, better quality is assured.
Flexibility:
When the output of the outsourced work is not satisfactory, the vendor can be changed easily. This proves less cumbersome, than replacing a full-time employee.
Time:
Outsourcing firms offer round-the-clock output. So the work will not be held up giving faster turn-around time.
Technology:
Rather than investing in technology, out-souring to the technologically advanced firms, can be more profitable and cost saving. Thus we are assured of best available technology, with less or nil investment in technology.
Reduces cash outflow:
When activities are outsourced, we need not own the equipment and resources. This reduces the investment for resources and equipment.
Focus on core activity:
Due to outsourcing the management can concentrate more on core activities which directly helps in improving the business to reap better benefits.
Reduced overhead:
Overhead cost of back-office operations is extremely high. Investment will be diverted towards attaining more office space and more equipment which result in drain in profits. When the activities are outsourced, overheads can be considerably reduced.
Staffing Flexibility:
When we expect periodic fluctuations, like increase in sales, buffer staffing is not required. Outsourcing comes as a rescue when there is a sudden increase in work load.
Risk Management:
Employee Turnover will add uncertainty and inconsistency to the operations. Outsourcing will provide a buffer to certain extent, against these issues.
The features behind Back Office Outsourcing
By: Kristen Stewart
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