The cost benefits of outsourcing a business process occur in three phases. In order to continue benefiting from outsourcing, it is important to create a plan for growth and innovation.
Immediately upon Outsourcing
Continue Savings as Your Work Volume Increases
More Savings from Innovation
Compare and contrast the projected cost outlay of outsourcing with and without innovation. Companies continue benefiting from outsourcing as business increases.
Immediately upon Outsourcing
Say you have a team of accounts payable associates and you are located in California. You want to outsource the work- it is not your core competency. If you replace your team with a team located anywhere else within USA there could be some geographical cost leverage advantage. However, not of any significance- what you gain may have to be given back in management fees to the outsourcing partner. However, if you recruit the talent you need globally, and potentially from a lower-cost country, you now get an immediate more significant cost reduction. This is the immediate cost saving as soon as you outsource. In the above graph, you see the sharp drop off in cost compared to your existing cost structure immediately upon outsourcing.
Continue Savings as Your Work Volume Increases
A good outsourcing partner brings more than people to the partnership. Good robust methods, past performance experience, and good management yield continuous improvements. As you increase your business work volume it allows your outsourcing partner to handle more volume at a lower unit cost. In the above graph, you see the total cost line has dropped off in slope as the benefits of learning, past experience, and, management of the process kick in. Such improvements can contribute additional 5-10% savings.
More Savings from Innovation
The outsourcing partner who is providing business process outsourcing services such as finance and accounting outsourcing services has gained process experience over multiple assignments. They are best suited to enable further cost advantages through the use of automation technologies. As volume increases with the use of automation technologies another 10-15% savings in unit costs may be achievable as shown in the graph above to continue benefiting from outsourcing.
About the Author
Arun Malhotra is an Entrepreneur, Founder, President of ARDEM Incorporated, New Jersey. He holds a graduate degree in Engineering from Stony Brook and an MBA from Ohio State University. He has worked in Operations Management for a leading Fortune 100 company before starting ARDEM in 2004. He likes to write thought articles on management, business process outsourcing, and business process automation.