Popular Outsourcing Models

The constant advancement of business practices all over the world is giving birth to various new business management approaches, one of which is ‘Strategic Outsourcing’. Relatively new, this approach is a long-term, result-oriented business affiliation between the client and the service provider. In the case of Strategic Outsourcing, the services can range from a single business process, a set of processes, to a complete cycle of one or more processes. Often, managing multiple non-core departments turn out to be stressful for the business owners, who tend to focus more on the core revenue-generating processes. Besides, today, all types of businesses experience incessant pressure from stakeholders and high market competition, which compels them to constantly improve their product/service quality and reduce their prices to keep up with their competitors. Hence, every entrepreneur needs to save on costs, to thrive in the industry. Strategic Outsourcing immensely contributes to cost reduction by freeing the business owner from the burden of hiring full-time employees, training them and offering them all the employee benefits like provident fund, Mediclaim etc. Also, this method guarantees high-quality and timely outputs, as the service providers or outsourcing companies are usually equipped with skilled and experienced workforces. Strategic outsourcing allows businesses to effectively reallocate resources like working time, efforts, fixed assets, money etc.

Hence, it is often considered a beneficial business management approach for start-ups or reputed companies looking to get more time for the core business operations, optimize production processes and cut down costs, simultaneously. Outsourcing models are mainly categorized under three labels: location, relationship and pricing.

The most popular outsourcing models are:

Location-Based Outsourcing

This outsourcing framework focuses on the distance or location of the outsourcing company.

• • • Onsite Outsourcing
      This outsourcing structure allows a business to have its outsourced team report in its office, sit and collaboratively work with its in-house team. Onsite outsourcing often speeds up the activities.
      
    • Onshore Outsourcing
      This model implies outsourcing business operations to a third-party company, based out of a state or country, same as the outsourcer. In the case of Onshore Outsourcing, language barriers and cultural differences get completely omitted.
      
    • Nearshore Outsourcing
      Following this model, the outsourcer can hire service providers, based out in one of its neighboring countries, which is within the same time zone. Nearshore Outsourcing is ideal for those looking for a more affordable engagement cost.
      
    • Offshore Outsourcing
      Offshore Outsourcing means hiring service providers or outsourcing companies, based out of distant locations. This model is extremely advantageous for companies looking to cut down the production cost without compromising the output quality but based in countries, where labor costs are considerably high.
      

  Relationship-Based Outsourcing

  This outsourcing framework focuses on the responsibilities of the outsourcer as well as the outsourcing company and also on how they work collaboratively throughout the association period.
  

  • • • Staff Augmentation Model
        Quite similar to Onsite Outsourcing, this model allows the client to get the outsourced team to join its in-house employees and manage internal programs. In such a case, the client gets complete control over the entire outsourced project, from the beginning to the end.
        
      • Managed Team Model
        This model allows the client to make sure he gets desired outputs by making him and the outsourcing company share responsibilities and appropriately designate tasks.
        
      • Project-based Model
        This model makes the outsourcer leave the outsourced task, entirely, in the hands of its outsourcing partner. In the case of the Project-based Model, the client just gives the brief and project requirements, and the service provider then owns the project throughout the contract duration.
        

    Price-Based Outsourcing

    This outsourcing framework focuses on the pricing(fixed or variable) structure of the outsourced services.
    

    • • • Fixed Price(FP) Model
          In the case of this model, a standard rate is imposed on the service provider, depending on the outsourcer’s preference. The outsourcing company gets the payment only after the completion of the project is completed and approved by the client. The outsourcing company often requests flexibility in terms of payment disbursement after reaching a specific milestone, mentioned in the contract.
          
        • Time and Material (T&M) Model
          Quite popular among IT projects, the T&M Model mandates the outsourced team to perform the tasks with the client’s supervision. Also, it involves bidding on the outsourced project and preparing a quotation, based on the requirements of the client.
          
        • Incentive-based Model
          This model requires the clients to offer incentives to the outsourced team, on top of the pre-decided rates, as a token of appreciation for exceeding the goals, mentioned in the contract. The Incentive-based Model often motivates the team and eventually increases their performance.
          
        • Shared Risk-Reward Model
          Similar to the Incentive-based Model, it entitles the clients to hold a bonus for the outsourced team, if it constantly delivers superior-quality outputs before the mentioned timeline, throughout the alliance. This model motivates the service provider to come up with fresh concepts, that are capable of improving the project while sharing the financial risk with its client.
          

      Summary:

      The concept of outsourcing was devised, primarily, to help businesses achieve their goals faster and better. Every business has unique requirements and goals. Therefore, when planning to outsource, it is very important to understand which outsourcing model will best meet your requirements. Factors that every outsourcer needs to consider are the specific needs and requirements of his business, costs involved in outsourcing, the knowledge and skills of his in-house team, the amount of control he would like to have on the outsourced project, the duration of the project, how can the outsourcing help him focus on the resources and the revenue-generating tasks better.