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Which is better: Outsourcing, Centralising or Offshoring

Centralising or Offshoring

Glance at well-organized for all the business functions and need help deciding whether the organization consider outsourcing, centralizing or offshore? All three options are great for all business holders to think of to enhance efficiencies, reduce extra costs and improve or upgrade service.

This article covered all the aspects of this topic. So, let’s understand this concept and determine which is best for the business.

Firstly, focus on the meaning of Outsourcing, Centralising or Offshoring.

What is outsourcing?

Outsourcing is a business practice that contracts out specific business procedures, tasks or services to a third-party source.

Outsourcing is done to an outsourcing service supplier placed in the same or other countries. This is known as offshore outsourcing, when an outsourcing service provider is located in a different country.

What is centralisation?

Centralization always is the first thought because of the capacity to obtain control. The company can regulate their employees’ working hours and activity in the office and maintain the quality of their work. The company’s centralized service helps integrated Geographic’s and functions, build standardization, increase efficiency, error and replication, and potentially minimize cost.

What is offshoring?

Offshoring is transferring activities or ownership of a final business process to another country from the country where the organization receiving the services is located. This is mainly to approach a market where the labour cost is lesser than the parent country, but also to access additional skilled labour or build a business existence in another country. The companies offshore either through an outsourcing arrangement with a third party or set up their own Global In-house Center (GIC) in the offshore place, among other business models.

What are the benefits of Outsourcing, centralising or offshoring?

After got to know the meaning of outsourcing, centralising or offshoring, but still, it’s not cleared which is the right choice for the organization. Let’s understand the following benefits of these terms:-

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Benefits of Outsourcing

Why do companies prefer to outsource? There are many reasons why a company prefer to outsource. Benefits of outsourcing why should a company consider this option for their organisation are:

  • Cost advantage: Costs are probably the motive behind choosing outsourcing services. Generally, companies analyse outsourcing work out to a 3rd party as cheaper.
  • Focus on core competency: Many functions are there in business, such as HR, information technology, production, sales & marketing, accounting, finance, security, transportation and logistics. Most of these are not “key functions” to the company. A “key function” activity provides the company with a competitive advantage. The company focuses on its core activity, which does better than its competition, and that’s why customers do business with the company. The company outsource people for non-core functions because the organisation wants to focus more on core activity.
  • Quality and Capability: For certain activities, companies don’t have in-house expertise. Matter of this, outsourcing is more efficient, and outsourcing vendors provide higher quality products and services.
  • Labor Flexibility: Outsourcing allows a company to ramp up and down speedily as per the requirement. An organisation requires several programming specialists for one year to develop an app. It would be impractical to recruit new people for only one year. Outsourcing can provide flexibility, so the company does not have to worry about hiring and firing. Outsourcing provide flexibility so the company does not have to worry about hiring and firing.

Benefits of Centralizing

  • Focused vision: –A company can easily focus on fulfilling its vision following a centralised management format. There are easy to communicate with, and the senior executive can pass the information about the organisation’s vision to employees and lead them toward achieving it.
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Without centralised management, there will be variability in passing the information to employees because there must be clear lines of authority. Planning the company’s vision from the top for a trouble-free implementation of its visions and strategies. The organisation’s stakeholders, customers, suppliers, and communities receive consistent information.

  • Quick implementation of decisions: – Small decisions are made in a centralised organisation, and then pass the information to the lower-level management. The participation of a few people makes the decision more efficient since they can examine the details of every decision in the meeting.

The decisions are passed to the lower levels of the organisation for execution. If lower-level managers are engaged in the decision-making process, the process will take much time, and disagreement will arise. The implementation process takes too much time and creates complications because some managers may disagree with the decisions if others ignore their input.

  • Improved quality work: – Standardised processes and better supervision in a centralised organisation result in improved quality of work. The results are consistent and of high quality, which the Supervisors confirm in every department.

Using high-quality equipment or machinery minimises potential wastage from manual work and helps guarantee high-quality work. Work standardisation also reduces the replication of tasks that may result in high labour costs.

Benefits of offshoring

Offshoring provides many similar benefits as outsourcing and centralising, such as:

  • Cost savings: Companies usually offshore production or services to other countries where labour costs are low. Therefore it helps in to cost savings. These savings are transferred to the customers, shareholders and managers of the company.
  • Skills: Some countries or regions build a much better ecosystem for specific industries, which means skilled labour is available in particular regions for certain tasks. Some countries have a large group of English-speaking, college-educated youth and developed training infrastructure, which is best for outsourcing business processes. Hence, many companies take offshore-specific business functions (e.g. call centres for customer support) to these locations. These can either be confined or outsourced.
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Which is better for the Business Outsourcing, centralising or offshoring?

Quality is the most crucial factor to focus on when deciding which option is best for the organisation. Minimising the cost of the business is the priority for most organisations. However, work quality should be the focal point in choosing whether or not to outsource for the organisation. Choose to centralise if the team can work harder and offer best-in-class service, and it’s a value-add to the business. And if organisations need all-time support from offshoring, that may be the best option.

An organisation should focus on the following factors when determining which business function strategy is suitable for the organisationOutsourcing, Centralising or Offshoring:

  • The competitive advantage of having a particular function in-house
  • Who can do this work better and more effectively?
  • Examine the costs of the services in which option cost will be lower when outsourcing or centralising the function.
  • The employee adds value to the business or not. 
  • How can a company leverage its ERP[1] system to support the function?
  • Choose the best option for the customer, not only for the bottom line

The critical element to consider in the decision-making process is in which area the company is the best performing. Never compromise with the quality, control the goal, and control the cost. Remember that costs will increase in future due to adverse consequences if the company choose the cheapest option.

Conclusion

Outsourcing, Centralising or Offshoring are all three options for the company, but they depend upon the many factors within the organization. Every organization has particular motives, and their operational functions are discrete from each other; one company’s core function is to offer consulting services to the customer, and another organization is to manufacture the product. So, the company’s core activity is distinct; as per their activity, the organization chooses which strategy is the best Outsourcing, Centralising or Offshoring, and other factors are also involved, like cost factor, quality assurance, vision, labour, and many more.

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