What is Outsourcing?
Most firms will have an Outsourcing Policy Template that is used to document their objectives and procedures for outsourced services and functions. The term ‘outsourcing’ refers to any business function or service that is provided by, or contracted out to an external provider or supplier.
Common examples of functions that are outsourced or are provided by an external supplier include postal and mailing services; shredding and confidential waste disposal; IT services and disaster recovery; debt collection and translations.
Why Do Businesses Choose to Outsource?
Not all businesses will outsource functions or services. However many SME’s use external providers to reduce their own resource need. Outsourcing usually happens for 3 reasons: –
- a firm is unable to complete a function or service in-house, possibly due to constraints on resources, time, space or the skill level needed to complete the task.
- it is more cost effective to outsource certain functions or processes (e.g. mailing or waste disposal).
- there is a legal or regulatory requirement for outsourcing (i.e. in debt collection where only licenced legal professionals or courts can carry out certain tasks).
Business Process Outsourcing (BPO) is the specific outsourcing of business processes (as opposed to assets or people) and has become a common part of most businesses in today’s market. There are 2 main definitions of BPO: –
- Horizontal BPO – horizontal BPO focusses on delivering generic support and process functions that relate to all industries as a general part of business. The supplier or vendor specialises in carrying out particular functions across multiple industry domains, such as recruitment, mailing, waste disposal, HR or accounting.
- Vertical BPO – vertical BPO is more industry specific with the supplier or vendor focusing on a limited number of sectors or industries, with the functions provided being industry specific. Vertical suppliers can be found in industries such as financial services, retail and healthcare and aim to be experts in the industry and functions that they provide.
Where a regulated firm outsources any of its business functions, it has a duty to its employees, customers and regulators to ensure that the function is still being completed compliantly, ethically and satisfactorily.
It is ultimately the firm’s responsibility to ensure compliance, even when the function or process is being completed elsewhere. For this reason, a strict and robust outsourcing policy and procedures are necessary.