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Shared Services vs. Outsourcing

by: Sarah Joson

Tuesday, September 9, 2014 |

Up to this day, outsourcing and shared services are often misconstrued by a lot of people. Shared services, back-end or administrative functions are centralized throughout the company - particularly on the service provider side. Outsourcing, on the other hand, is the process of contracting an external party to deliver specific services.  

With the rapid changes that organizations are going through, they have been seen applying any of these, sometimes even both. However, even if outsourcing and shared services have similar advantages and strengths, business owners should do their research first to get the most out of whichever solution they choose.

shares five factors that should be looked into by business owners when evaluating shared services and outsourcing:

1) Are the internal structures ready? If the process and infrastructure are not ready to accommodate a companyís initial setup or expansion plan, they can tap third party service providers that are already equipped with the skills and technology and are capable of implementing and aligning their processes with the clientís.

2) How complicated are the processes? Majority of the functions outsourced are known to be repetitive and simple that these can be easily transferred to an external provider. Complicated and exclusive processes are best kept in-house. Some of the factors that make a process complex are: the value it contributes to the growth and progress of the organization, the level of exclusivity, and effects on business continuity.

3) Does the process depend on the scale of the personnel? Niche providers are known to be effective in small outsourcing operations. If you are looking to outsource a unique process that requires a large volume of workers, then a large multinational is the better choice. However, if you still prefer a large, multi-faceted service provider then you can opt for service bundling where several processes are combined into one contract to reach the minimum or target number of full-time employees (FTEs).

4) Does the process depend on the culture and environment of the operation? Business owners should also analyze if the location of the providerís delivery centers will affect the outcome of the operation. This can lead to misaligned goals, loss of documentation, and process control. There are also regulatory and legal requirements that could put strain on the outsourcing operation, so these should be checked as well.

5) How much will the sourcing operation affect your budget and operations in general?
Business owners should evaluate the current status of their operations not only in the financial side, but the status of their current output and process maturity as well. In this way, they will be able to assess if outsourcing is a cost-effective move, or investing in an internally managed environment, new technologies and facilities will be better for them.

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