Outsourcing vs. Centralizing vs. Offshoring: Which is Best for your Business?

08.18.2017 | Published By:

David Bizzaro

Looking to streamline your business functions and can’t decide whether you should outsource, centralize or offshore? All three are great options for small business owners looking to increase efficiencies, reduce cost and improve service – so let’s break them down to determine which is the best for your business. 

Defining the Options

When it comes to work distribution, companies have three primary options—centralizing, outsourcing, or offshoring.

Simply put, centralizing a service is to do it in-house, at a single location. Centralization should always be the first consideration because of the capacity to gain control—you have the ability to regulate your employee’s time, activity, and quality. When companies choose to centralize a service, they are able to consolidate geographics and functions, create standardization, reduce inefficiency error and duplication, and potentially reduce cost.

If centralization isn’t right for you, consider outsourcing. Any time you use a third-party service or hire an outside specialist, consultant, or agency, you are outsourcing. Many companies chose to outsource in areas of human resources, finance, marketing, and information technology. If your company is not best in class at the activity under consideration, then find the best external partner and leverage them.

Similar to outsourcing, companies have the option to offshore. When a company offshores a service, they are using a third-party company that is based overseas. They have outsourced to a different country.  Many times this option has the advantage of lower labor costs, which could be reduced by nearly two-thirds.  In addition to cost reduction, an advantage to offshoring includes a global/on-demand workforce that is “always on,” thanks to working in different time zones.  This is often referred to as a “follow the sun” strategy.

Choosing the Right Solution for Your Business

When deciding which option is best for your company, the most important factor to consider is quality. Many times companies will make cost reduction the prioritizing component; however the real focal point in choosing whether or not to outsource should be work quality. If your team can provide best-in-class service and it’s a value-add to your business, centralize. If not, outsource – and if you need the 24/7 support afforded by offshoring, that may be the best option for you.

In addition to the question of quality, ask yourself these questions when determining which business function strategy is right for you:

• Is there a competitive advantage to having this function in-house?
• Is this function a commodity? Can someone else do this better and more effectively?
• Are the costs of the services lower when outsourcing or centralizing this function?
• How can employee turnover impact my ability to deliver this function in house?
• How can I leverage my ERP system to support the function?
• Which option is the best for my customer, not just my bottom line?

The key element to consider in the decision-making process is to focus on what you’re best at. Make quality and control the goal, and cost savings will follow. Remember that cost could increase over time due to negative consequences if you just go with the cheapest option.

Still Need Help Making the Decision?

When deciding which option is best for distributing various services for your business, it is important to take a process based and unbiased approach. If you don’t map the process, you won’t see the desired benefits, and if you let your heart lead instead of your mind, you could end up in hot water.   If you decide to outsource, you need to still maintain control of the complete process by negotiating and monitoring service level agreements with your outsourced partner.

At vcfo, we understand that each business is different and has different needs. Let our team of seasoned financial, HR, IT and other professionals provide your company with an unbiased opinion about which work allocation option is right for you. For more than 20 years, vcfo has helped companies determine which option is best for them, and have then gone onto assist in the execution of their choice. For whatever your company’s needs might be, vcfo is here to discuss your options with you, and help guarantee that you are making a sound business choice.

Tags: strategic planning,financial strategy,financial services,small business management

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