If John Stith Pemberton, the founder of Coca Cola, knew just how much money he would save by outsourcing nearly 80% of his product’s volume to third party providers back in 1886, he would’ve done it way sooner, and Coca Cola would’ve conquered the beverage market way earlier.
Outsourcing the skills and talents of third party providers isn’t news; Coca Cola had bottling operations, transportation and the supply of carbonated water outsourced to third party independent contractors centuries ago. All Pemberton and his successor did, was concentrate on building the brand and supply the dark, syrupy concentrate.
Although history testifies of earlier success stories, outsourcing became officially defined as a business model which involves the contracting out of business processes (operational and/or non-core functions) to another party much later in 1989.
In today’s fast, digital world, competition in the business sphere is fiercer than ever. Competing for customers, struggling to survive financially, or just looking for a way to take your business to the next level –are just a few of the issues many companies struggle with in today’s fast, digital world.
Such competition consequently brings the need for cutting operational costs and directing resources to the core activities that move a business forward. Cutting operational costs has always been a risky, game-changing decision for companies, mainly because it goes hand-in-hand with the uncertainty of whether the decision would turn out to be beneficial in the long run. Choosing the right way to cut costs is just as troubling.
While conventional business models can deliver only 30-40% cost reductions, outsourcing has proven to deliver as much as 55% reduction in operational costs. If all processes are defined and implemented accurately and precisely and the relationship with the vendor is well-managed, outsourcing can deliver huge benefits to a company.
Choosing a vendor who offers the best-in-class methodologies and technologies is the first step towards reaping the benefits of outsourcing. The specialists using these technologies and methodologies would be able to improve, reengineer and optimise your processes, which is how you get the reduction of costs. Over time, you can easily achieve economies of scale.
Outsourcing can also give you a chance to create a variable cost structure. You can direct certain fixed costs towards variable costs, and improve your operating leverage ratio. This way, your variable costs would become much more predictable as well.
Increased business focus
When a large part of the driving locomotive of your business is outsourced, you free a lot of resources both financial and non-financial. Key team members can focus on developing new products or services as well as explore and conquer new markets. It’s of the utmost importance to have something new and fresh to offer to today’s highly demanding audience in order to survive as a business.
Additionally, you’d free a huge part of your existing infrastructure, which would translate as lowering your costs for rent and maintenance.
Finally, with that amount of freed resources, you can improve your speed to market, response times and overall business agility.
Improved quality and delivery excellence
One of the best advantages a third-party provider offers to companies is the access to a large pool of specialised talents. People with expertise in all areas from finance and IT to marketing and managing call centres who work in a standardised and optimized process structures which allows them to excel at their performance. The fact that there are well established, pre-defined quality measures, allows the employees to deliver the expected quality levels.
Companies that are tired of the traditional and old company structures could include a dose of innovativeness by implementing outsourcing as a business model. By outsourcing certain operational tasks, your organisation would gain a structure that strives towards increased effectiveness. As a result, the way business is done would become modernized and more in-line with today’s globalised, digital world.
Outsourcing isn’t big news. As history tells us, today’s giants like Coca Cola reaped the benefits of it long before and got to the point where they’re now. And back then, competition wasn’t like it is today. Today, when your customers have more power over you than ever before thanks to social media, to risk keeping certain costly, operational activities in-house could be slowing you down on your way to the top – big time.