What are the types of outsourcing models?

Inez Bartosińska

You have probably heard about business strategies based on outsourcing more than once, or maybe you use them yourself in your company. Thus, you probably also know that outsourcing is nothing more than using external sources. In other words, we can describe outsourcing as delegating tasks, functions, projects, and processes to be performed by an external company.

If you want to delve into this topic and find out what are the types of outsourcing models, what is the best example of outsourcing, or what benefits it can bring to your business, then keep reading and get a basic understanding of these issues.

What is outsourcing and its types?

We can define outsourcing as a strategic method of distributing some work functions to another person or company instead of fulfilling them in-house. Usually, it’s undertaken by businesses that want to cut the costs, have the assistance of a qualified and experienced team, and therefore, save time and focus on the core aspects of the company’s development. 

When deciding to cooperate with the selected service provider, you should carefully verify if he can deliver the best results. Certainly, the provider of your choosing should be specialized in carrying out tasks in the fields that you want to entrust him with. Depending on his knowledge, resources, and priorities, you will determine what potential areas and in what form they can outsource. 

As a client, you can choose between total or selective outsourcing. In the first case, you sign a contract for comprehensive service by an external service provider; in the second – you select which areas to cover with the contract. The ability to select appropriate areas of activity allows for the maximum adjustment of the services provided to the current needs of the company and is the result of the profitability calculation. If you have doubts about which type of outsourcing is the best for you, do not hesitate to contact us, and we will estimate your project for you. 

Let’s go through some of the most common outsourcing types:

Professional Outsourcing – includes any type of expert services, e.g., legal, accounting, purchasing, and IT or administrative support. As you pay only for the service provider, professional outsourcing has the potential to minimize costs significantly, so it’s one of the most popular outsourcing types. Moreover, you get to hire the most skilled professionals as there is no need to worry about their location. Finally, you get to replace the worker quickly if something goes wrong. Remember, though, that this type of agreement works both ways so that the provider can replace you too. 

IT Outsourcing – while developing software, technology, or application, it is crucial to find the right fit rather than focus on the developer’s location. The task performance is what matters the most. IT Outsourcing involves a wide range of services, from product development to maintenance and support. Businesses often apply IT outsourcing to hive off some or all IT functions or store and manage data. This solution provides you with the assistance of qualified professionals, allowing you to focus on your company’s core functions and strategies. While hiring an outsourcing developer, it’s important to consider language differences and different time zones as they might get in the way of successful cooperation.

Manufacturer Outsourcing – involves employing a third party that will produce your product at a lower price than you would get while making all of the goods by yourself. Even though there will be lots of logistic planning and shipment required, manufacturer outsourcing still could result in cost savings and improved efficiency. 

Project Outsourcing – this is the perfect solution if you have trouble managing a project or its part and you need some assistance, but it doesn’t have to be full-time. You can outsource some of the tasks, such as redesigning your website or entire projects to a project management company. Again, you will save some money and have the support of an expert who is specialized in this kind of project. With project outsourcing, you save time and improve the quality of the outcome. Ensure that you can track your service provider’s time spent on the task, so you don’t overpay. 

What are the outsourcing models?

We can define different types of outsourcing under two labels – the location-based types of outsourcing and relationship-based IT outsourcing models. Let’s start with the first one. 

Location-Based Types of Outsourcing 

These types depend on how far away from you your service provider resides. Let’s see the differences between them. 

  • Onsite Outsourcing – this type of outsourcing means that the service provider sends a team of qualified professionals to work from your office for a fixed period of time. Even though it may seem the opposite to ‘outsource’, this solution is very beneficial as it allows the team to learn faster about your needs and you to manage them better. 
  • Onshore Outsourcing – it means that your service provider resides in the same country as you do but at the same time is outside of your company. This option is very convenient as you won’t have to experience any issues with time zones, language, or cultural differences. 
  • Nearshore Outsourcing – the service provider is based in one of your neighbor countries, most likely in the same time zone. Most companies choose this option in search of cheaper solutions. 
  • Offshore Outsourcing – this type of outsourcing assumes that the team providing services is based in a distant location. 
  • Multisource Outsourcing – in this type, there is usually more than one outsourcing provider involved; thus, they can reside in various locations. This solution is mostly beneficial for large companies and corporations that need to ensure the best service quality possible. 

Relationship-Based IT Outsourcing Models

These outsourcing models vary based on ownership and responsibility.

  • Staff Augmentation – similar to the onsite outsourcing type, the staff augmentation model assumes engaging an expert or qualified team to join you in-house to manage internal projects. Most of the responsibility is placed on the client. 
  • Managed Team Model – both the client and service provider share the responsibility by deciding which task belongs to whom. The outsource team doesn’t work in-house, but they report directly to you, your company’s PM, or CTO.
  • Project-based Model – based on your needs and requirements, the service provider completes every stage of the development for you. The responsibility is placed mainly on the outsourcing party, and the team reports directly to the vendor’s PM. 

What is the total outsourcing model?

In general terms, the total outsourcing model implies that you outsource one or more activities for a fixed period of time. It involves hiving off all of your facilities, equipment, and data. Thus, the control over those activities and their administration lies entirely on the service provider.

In the total outsourcing model, you ask the outsourcing company to build a team and the business process from scratch. The main advantage of this solution is that the service provider of your choosing can manage a whole range of functions that you usually would need to divide between few outsourcing companies. As a result, your business is better prepared to react quickly to new challenges and market demands. 

Some other benefits of the total outsourcing model are:

  • Minimized costs as you substitute expensive in-house labor with a less costly service provider 
  • External experts will provide you with the expertise your company lacks
  • Saved time to focus on your company’s business and marketing strategy
  • Reduced potential risks 
  • No need to install a local entity in the country you want to operate from 

Even though the total outsourcing model is pretty convenient, it’s not without risk. For example, as all the data is on the provider’s site, you won’t be able to recover it in case it was lost. Also, for the same reason, you cannot easily move to a different company. Finally, you don’t have much control over the tools used in the development process as you are not the one who owns them. 

Nevertheless, if you plan carefully and estimate your company’s needs, the total outsourcing model could probably turn out to be very profitable. 

Which is the best example of outsourcing?

Nowadays, almost every company uses IT resources in some way. Even if the direct scope of services has nothing to do with this field, companies must have their website, a place to store data, or maybe they want to offer their customers a digitized product. All these and other companies that develop software products strictly very often use outsourcing. It is no wonder then that IT asset management is the most popular example of its application and the most significant outsourcing sector. 

Using IT infrastructure, there is a need for experts in this field who will build, maintain and support it. Often in the country in which you operate, such services are very expensive. Therefore, hiring an additional internal employee or the entire team and introducing them to your company is associated with high expenses. Outsourcing that allows you to outsource the same tasks to specialists anywhere in the world is a great answer to this problem. This not only reduces costs but also enables you to find the best possible solution for your company, thereby increasing the quality of your services or products.

At BinarApps, we often carry out projects requested by other companies that find our offer searching for qualified specialists in a given field. It doesn’t matter if you only need to hand over a part of your project to us, plan it, build an application, or maybe you already have a finished product, but you lack good maintenance and support services. Even if you would like us to build and coordinate the entire project for you, we have great experience proven by numerous success stories that you can read on our website. Don’t hesitate to ask for an estimate of your project. We will save your time and money so that you can focus on the development of your company.

Read also: 9 documents that will support your RFP for software development

Benefits of outsourcing development

Let’s sum up briefly the benefits of outsourcing development.

  • Minimized costs – hiring a service provider usually turns out to be less costly than employing an additional in-house worker or team. You can choose a provider from any place in the world according to your needs and requirements.
  • Saved time – if you lack specialists in some scope, you could hire a whole new team and introduce it to your company or train your in-house employees; however, that would require at least a few months. By choosing outsourcing development, you get to realize projects quickly and with good quality. 
  • Support of skilled experts – outsourcing development solution allows you to search for a service provider all over the world. Thus, you get to choose the best professionals who will provide you with their knowledge and skills. 
  • Greater efficiency – saved time and money, and assistance of qualified developers will allow your business to thrive. You will improve product or service quality, and you will be able to provide them faster to your customers. 
  • Flexibility – outsourcing development entails greater flexibility as you can easily cooperate with a service provider who doesn’t necessarily live nearby. If you want to focus on the best quality, you can choose a team located in a different country, but provides the exact support you need. On the other hand, if you’d rather hire an external worker but still want to keep an eye on them, you can look for someone who will work with you in-house. 

Future of outsourcing

The global business process outsourcing market size was valued at USD 232.32 billion in 2020 and is expected to register a compound annual growth rate (CAGR) of 8.5% from 2021 to 2028. Thus, overall, we expect the market to benefit from the growing interest of companies in improving their workflow with outsourcing solutions. The market is likely to benefit significantly from the growing interest of companies in outsourcing solutions. They enhance work and increase the responsiveness and agility of the business in response to the dynamic market. At the same time, outsourcing reduces operating costs and allows you to focus on key aspects of the company, such as sales strategy or marketing. It seems that more and more companies will decide to reap the benefits of business process outsourcing (BPO) services in the coming years.

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