99% of Fortune 500 companies leverage the power of outsourcing.
Outsourcing helps companies meet today’s demands of efficiency while being cost-efficient. So, it’s no surprise that decision-makers look for actionable insights to refine their outsourcing tactic.
In this article, we will explore how you can craft a successful outsourcing strategy through a 5-step approach. We will discuss each step, focusing on practicality and relevance to the current market demands.
Examples Of Successful Outsourcing Strategies
Industry giants like WhatsApp, Slack, and Nike are real-world examples of companies that utilize outsourcing strategies successfully. Let’s take a quick look at how they did it:
1. WhatsApp
WhatsApp hired external experts with specialized skills to help the company grow while keeping its in-house team small.
One of the company’s best hires is Igor Solomennikov, who developed its iOS application. The company also outsources its customer service operations to provide its customers with 24/7 service.
The result of their expansion? A $19 billion acquisition by Facebook in 2014.
2. Slack
Slack leveraged outsourcing a lot in its early days. Its founder, Stewart Butterfield, identified his weaknesses and got an expert to perform tasks he couldn’t do.
So he chose MetaLab as an outsourcing partner to help with Slack’s:
- Logo
- Design
- Website
These outsourced services built Slack’s company image, which helped in its rapid rise. Today, the platform has over 30 million active users daily.
3. Nike
Nike’s outsourcing strategy shows how it uses worldwide resources to strengthen its position in the market. Phil Knight outsourced the company’s production process to Southeast Asia, where there are lower labor costs.
Besides being budget-friendly, Nike benefits from the agility and scalability offered by these external partners. This helps the brand focus on making innovative product designs and planning large-scale marketing campaigns.
| Company | Outsourced Tasks | Number of Employees | Company Valuation |
| App development, customer support, UX/UI design | 55 (at the time of the acquisition) | More than 118.8 billion | |
| Slack | App design & development, logo, website | Over 2,545 | $26.5 billion |
| Nike | Manufacturing, production facilities, Factory labor | 83,700 | 151.37B |
5 Steps To Build A Solid Outsourcing Strategy
Ready to build a successful outsourcing strategy? This structured, actionable 5-step plan is designed to help you get tangible results.
Let’s dive in and plan your approach to gain a competitive advantage for your organization.
Step 1: Clearly Define Your Business Goals
Strategic outsourcing starts with identifying your company goals to know which business processes you can contract externally. This strengthens your business strategy by making it more cohesive.
It also makes contracting out a big part of your company’s success, not just something extra. This way, every move you make in your outsourcing initiatives counts and maximizes your ROI.
How do you do this?
Identify your core business objectives.
- Do you want to reduce operational costs?
- Do you want to improve customer service response time?
- Are you looking to scale your company operations quickly?
Then, find out which aspects of your business can be outsourced to support your objectives.
Once you define those, use the SMART framework to make a unified goal.
For instance, your SMART goal could be:
- Improve response time for customer queries by 40% in the next 12 months by deploying customer service operations to a PH-based team.
How is it SMART?
- Specific (improve response time for customer queries)
- Measurable (40% improvement)
- Achievable (with the right outsourced provider)
- Relevant (aligns with broader customer satisfaction aims)
- Time-bound (12 months)
Let the clear goal communicate your expectations and provide a benchmark to measure the success of your outsourcing efforts.
Step 2: Identify And Prioritize Business Functions To Outsource
Differentiate your core and non-core activities to identify certain job functions that can be done by external companies.
Core activities are the main tasks your company does to help it stand out from others and give you a competitive advantage. In contrast, non-core activities are also important but they are not directly related to what your brand is known for.
For example, if you have a tech startup, your core activities can be software development and server management. Your non-core activities could include payroll and admin.
After that, consider value, cost-efficiency, and strategic importance as the 3 main criteria when selecting certain tasks to outsource. Here’s how they can guide you:
Value
Review your business process and ask yourself: “Is this task really important for what we do best?” For example, if you have a graphic design firm, focus on creative work, and outsource payroll and human resources.
Cost Efficiency
Find certain tasks that third-party companies can do cheaper. This way, you don’t spend as much money on fixed costs, like paying for in-house bookkeepers or external resources.
Strategic Importance
Think about the things in your company that are important but not what you’re best at. For example, if you have a retail store, you might not be an expert at online ads. Hire externally and use their technical skills while you focus on running your store.
Step 3: Selecting The Right Outsourcing Partner
The ideal outsourcing provider should boost your organization’s strategic position.
To choose the right one, focus on 3 key factors: Expertise, Compatibility, and Reliability.
| Expertise | Look for a provider with proven skills in the specific task you’re outsourcing. For example, if you’re sourcing an Executive Assistant, choose a firm known for delivering experienced and highly skilled EAs. |
| Compatibility | Pick a third-party company that works and thinks like you do. This makes talking easier and creates productive and meaningful partnerships. |
| Reliability | Check their track record for delivering projects on time and meeting client expectations. A reliable third-party provider ensures smooth operations. |
Also, do quality control of your shortlisted outsourced providers by checking their portfolios and case studies. If possible, ask for references too. This helps you see how good they are, what they know, and if their other customers are happy.
Step 4: Establish Clear Contracts And Communication Channels
With good contracts and clear ways to talk, both parties will know what to do and expect throughout the outsourcing initiative. These 2 factors lay the groundwork for a transparent and effective relationship with your sourcing partner.
Where should you start?
List what both parties expect from one another to start creating the outsourcing contracts and service-level agreements (SLAs). These legally binding documents help avoid any mix-ups to make everything flow smoothly.
To make these documents effective, define the following:
- Timelines
- Deliverables
- Payment Terms
- Project Descriptions
- Key Performance Indicators
You should also talk to legal experts to make sure all legal and compliance aspects are covered. In these lengthy contractual agreements, remember to include rules for solving issues and terms for keeping sensitive data secret.
Here’s an SLA checklist to guide you:
To further manage your outsourcing activities well, practice consistency and clarity in your communications. Schedule weekly or bi-weekly meetings to secure regular check-ins with your team. You can discuss progress, address employee concerns, and create plans.
Also, use collaboration tools like Asana or Trello. They let you monitor projects to make sure everyone and everything is moving in sync and no deadlines are missed.
You should also establish clear reporting protocols. Create standard formats and intervals for reporting to make sure you’re always informed about the project status.
Step 5: Monitor And Optimize Your Outsourcing Process
Strategic outsourcing is an ongoing phase as your needs change and the market evolves. So regularly assess and tweak your outsourcing model to make sure it’s still working for you.
Also, monitoring the outsourcing companies you’re working with lets you identify problems and solve them quickly. This also helps you make sure that every part of your value chain is always at its best.
How do you guarantee you’re doing this right?
Conduct frequent evaluations of your outsourced services against predefined metrics in the SLA. This could include the quality of work and whether tasks are done on time. Doing this helps you make sure your internal resources are used in the best way.
Additionally, set up accessible communication channels, like Slack or emails, between you and your service provider. You can also ask for feedback from your teams to gain access to different views and gauge employee satisfaction.
Remember to use specific, relevant KPIs for your outsourced function to measure success and areas for improvement. For instance, if you outsource your customer service reps, monitor metrics like response time, customer satisfaction scores, and resolution rates.
You can also gather feedback from customers through surveys to identify areas where your team needs more training. For example, let’s say your customers mentioned they’re not getting helpful answers to product queries. Train your team to have more in-depth product knowledge.
2 Common Ways Companies Outsource Work
Understanding the 2 approaches to business process outsourcing helps you choose which outsourcing firms to work with. This lets you maximize your project budget and resources.
Here are the 2 types of outsourcing you need to know about:
I. Offshoring
Offshoring means moving your company’s time-consuming processes to a different country, more likely in Southeast Asia or India. Why those regions?
Because they offer smaller overhead costs since they have lower costs of living. Additionally, the workforce from those areas has specialized skill sets to help give your brand strategic positioning.
For instance, if your US-based company needs IT experts, get a certified IT specialist from a country like the Philippines. The IT industry is booming in that country and they have a lot of professionals with diverse technical characteristics.
The immediate benefits? Your business gets top-notch IT help, and you save money.
Who can best help you with this?
Genius is a great example of a platform that demonstrates offshoring’s effectiveness. We are an agency specializing in recruiting top Filipino talent for companies worldwide to help them be competitive global market.
Through offshoring, we help our clients save around 88% compared to hiring from the US. More importantly, our clients enjoy the services of our highly skilled and experienced professionals who ensure quality work.
II. Nearshoring
Nearshoring is when a company outsources work to neighboring countries. Besides saving money, making this part of your outsourcing tactic helps you maintain greater control over your operations. Plus, this opens the door for better collaboration between your outsourced team and the ones handling your internal business processes.
For example, if your company is US-based, you can choose to outsource either in Canada or Mexico. This is beneficial because their time zones will overlap, making it easier to set up meetings and collaborate.
In addition, nearshoring lets you travel easily to visit your outsourced team for in-person meetings or quick assessments. There’s also the cultural factor. Contracting out to a nearby country means having a workforce with fewer cultural barriers.
For instance, if you have a Singaporean company, you can outsource to Malaysia. Both countries share similar ethnic compositions, including Chinese, and Indian communities, to help with common cultural understandings and practices. They also have multilingual populations with a strong prevalence of English to ease communication.
The Pros And Cons Of Outsourcing
Like everything in the world, outsourcing has its pros and cons. Besides knowing what benefits you get, this will help you prepare for the challenges that may come with it.
Here’s a balanced overview of the advantages and disadvantages of outsourcing:
| Aspects | Pros | Cons |
| Cost Efficiency | Significantly reduce costs to help you make a bigger profit margin. | Risk of budget overruns due to hidden costs. |
| Focus on Core Activities | Improve outputs since you focus on your core business activities. | Getting carried away, resulting in relying too much on outsourced functions. |
| Access to Global Talent | Choose from a wide range of professionals from across the globe. | Communication issues due to language barriers or cultural differences. |
| Flexibility and Adaptability | Quickly adapt to market changes and business needs without the red tape. | Risk of losing control over your outsourced business functions and processes. |
| 24/7 Business Operations | Leverage different time zones for around-the-clock customer support service. | Huge time zone gaps can cause coordination challenges and project delays. |
| Operational Efficiency | Streamline operations by outsourcing time-consuming processes. | Challenge to maintain consistent quality and standards across your different service providers. |
| Service Quality | Get higher-quality services from providers with specializations. | Risk of inconsistent service levels, depending on the service provider’s staff and resources. |
| Innovation and Expertise | Bring in fresh perspectives and approaches to improve your capacity for innovation. | Ideas from outsourced teams might not align perfectly with your company’s overall vision. |
How Much Do Companies Save By Outsourcing?
Outsourcing services to countries like the Philippines results in cost savings. The wages and living costs are significantly lower there than in the US. The result?
Companies optimize business processes with skilled professionals while cutting their salary expenses by about 70%-80% when they outsource there.
But what are the roles you can most likely outsource to the Philippines? How do they compare to their US counterparts?
A. Customer Support Representatives
US Customer support representatives have an average salary of $4,800, compared to just $1,000 for PH employees.
B. Graphic Designers
The average monthly salary of a US-based graphic designer is $4,446 while their PH counterpart earns $1,200 monthly.
C. Executive Assistants
Hiring an EA from the US will set you back $5,166 on average. An EA from the PH will only cost you $1,200 per month.
D. Content Writers
A US-based content writer has an average monthly salary of $4,604, while PH content writers earn an average monthly salary of $1,000.
E. Data Entry Clerks
A US-based clerk has an average $3,214 monthly salary, while PH clerks only cost $800 per month.
F. SEO Specialists
In the US, an SEO specialist has an average $4,488 monthly salary, while PH-based ones earn $1,200 per month on average.
G. HR Recruiters
HR recruiters in the US earn $4,812 monthly, while their PH counterparts have an average monthly salary of $622.
H. Administrative Assistant
The average monthly salary of a US-based admin assistant is $4,084, while sourcing someone for the same role from the Philippines will only be $1,000 per month.
I. Social Media Manager
A social media manager in the US earns a $4,745 monthly wage while hiring in the PH will be more budget-friendly at $900 monthly.
J. Full-Stack Developer
Employing a full-stack developer in the US means you have to pay an average monthly salary of $9,783, compared to just $2,500 for a similar role in the Philippines.
Future Trends In Outsourcing
The business world is ever-evolving, and by extension, so is sourcing. Use these trends for strategic outsourcing to strengthen your organization.
Here are the best 3 outsourcing trends to watch out for:
a. Automation: Use automation tools to do repetitive or routine tasks quickly. For instance, your outsourced teams can use Hootsuite for social media management and Mailchimp for email marketing. This makes work faster and cheaper, letting people focus on bigger tasks.
b. AI Integration: This trend involves AI technologies to improve your outsourced functions, like having a chatbot to assist your customer service reps. They can use the data from AI to help them become more adaptive and responsive to customer needs.
c. Virtual Teams: The global shift towards remote work pushes this trend forward and offers flexibility to both employees and employers. Plus, you will have access to overseas professionals instead of being limited to the applicants in your city. You can run a 24/7 operation without having to pay for offices, resulting in even more cost-effectiveness.
But how do you prepare for these changes?
Invest in relevant technologies and ensure your outsourced teams are trained on how to use them to reduce mistakes. Teach them the different ways how to leverage automation and AI tools to be more productive.
You should also set up remote work guidelines and use collaboration applications to guarantee everyone is on the same page despite the distance.
Conclusion
Through our 5-step approach, you can create an effective outsourcing strategy that will help you be economical, drive operational efficiency, and access global talent. Carefully implement each step to make sure your outsourced tasks are successful.
If you want a helping hand, partner with Genius to guarantee the success of your outsourcing strategy. With us, you will have access to the top 1% of talent while saving up to 88%.
