Outsourcing versus Shared Services: Which is Better?

Outsourcing and shared services are two competing trends which help organizations to get more value out of their business operations…

Outsourcing and shared services are two competing trends which help organizations to get more value out of their business operations. In response to changing market trends business consultants perennially revisit the subject of shared services versus business process outsourcing.

  • Outsourcing:

Many businesses from small to large enterprises outsource their operations from data entry to handling email security, medical billing, customer care, budgeting and forecasting. Companies decide to outsource functions for many reasons, some of which include reduced operational costs, quality customer care, trained staff, specialized skills and equipment. Implementation of BPO concept offers following benefits:

  • Companies hiring services from BPO firms don’t need to worry about the hiring and training of staff. Outsourcing companies take over the headache of managing the team of agents with desired skills and expertise.
  • Customer Care Outsourcing is the best solution for multi-regional businesses which need to provide customer support in different parts of world and in different time zones
  • Outsourcing offers quick and optimized solutions which lead to the improved efficiency, accuracy, and effectiveness of business operations.
  • Shared Services:

Many large multinational companies are adopting a shared services model in delivering human resource, IT and back office functions. This transition is tied to many benefits related to both performance and cost. Some prominent positive outcomes of a shared services model include:

  • Reduction in operational costs by reducing the number of service employees, hardware and software systems.
  • Improvement in organizational performance by concentrating on managerial and technical expertise.
  • Shared services model is more responsive to changing business needs, as it is part of same enterprise and has close relationships with business units or departments.
  • This model doesn’t require sharing information with outside third parties.

Implementing a shared services business model also incurs risks such as lack of operational flexibility, increased complexity of systems, unclear service accountability and unexpected implementation of cost escalation.

  • Which is Better?

Research reveals that a mixed approach towards outsourcing and shared services strategy is optimal.  Many companies are motivated to externalize their support services to third parties, while at the same time others prefer to focus on their shared services model. As per research mentioned on “Horses for Sources” the following trend has been observed:

  • 93% of enterprises have shared services model.
  • 96% have outsourced some elements like IT support and back office functions.
  • 27% are reducing investments in their internal business units.
  • 56% are increasing investment in centralized hybrid governess to manage the hybridization of shared services and outsourcing models.

Both of the abovementioned means of doing business incur their own benefits and risks, and each company has its own reasons for choosing a specific model. Generally, however, businesses seeking greater flexibility, multi-regional support and access to technological innovations at low cost would benefit more from outsourcing than shared services. The reason is that countries like India, Philippines, and China have developed their outsourcing industries to such a high level that their BPO firms can offer any type of technological solutions at a tremendously lower cost when compared to implementation of a shared service model within the company.

 

Author:

Shafiq U. Rahman

shafiq Rahman

Shafiq Rahman is Premier BPO, Inc.’s Digital Marketing Executive. Prior to joining Premier BPO, Shafiq held several senior management positions in banking. He was CEO of a Citibank subsidiary and Regional Sales Head for Payment Product for North Asia, Global Head of Electronic Trade Products at Standard Chartered Bank, Head of Product Management at ABN Amro, and Regional Head of Trade Products at JP Morgan. He is experienced in relationship management, sales, product management, and operation management. He has extensive international experience and has lived and worked in eight countries.

 

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