What types of outsourcing models are there?
Choosing the right pricing model can be confusing when working with a software development partner for an outsourced project. You must balance the risk and reward for each party while making sure that the BPO company provides solutions, not activities, that guarantee you get the most out of your investment. In your view, organizations have multiple pricing models to choose from when structuring their next outsourcing arrangement.
What is an outsourcing model?
Outsourcing can be defined as a strategic strategy to delegate work functions to another person or company instead of performing them in-house. This is usually done by companies that want to save money, have the help of a trained and experienced team, save time and focus on the most important areas of their growth.
What types of outsourcing models are there?
Undoubtedly, staying competitive in the corporate landscape requires you to be decisive and strategic. In many ways, outsourcing better equips your business to shift into higher gear. But how do you know which outsourcing strategy best suits your needs? Outsourcing models are categorized by location, relationship, and pricing.
Location based outsourcing
This outsourcing framework is pretty easy to understand as the name says it all. It emphasizes the distance or location of your service provider that is relevant to you.
Onsite outsourcing means that your outsourced staff will report to your office and work alongside your in-house staff. Additionally, inviting remote workers to your physical location speeds up their understanding of your processes and systems.
Onshore outsourcing is defined as subcontracting your tasks to a third party within the same state or country. This type of collaboration works best for companies in one country, as barriers such as language and cultural differences are minimal to non-existent.
Nearshore outsourcing is the model where vendors are hired in the host company’s neighboring countries, most likely within the same time zone. Although there can be difficulties in language aspects, most companies that outsource nearshore are looking for more affordable engagement costs.
If nearshore outsourcing deviates to neighboring countries, offshore outsourcing, on the other hand, migrates too far to more distant locations. Offshore outsourcing primarily attracts nations with high labor costs and aims for lower prices without sacrificing the quality of the services they pay for.
Usually more than one outsourcing provider is involved; therefore they can be in different places. This solution is especially beneficial for large companies and corporations to ensure the best possible quality of service.
Relationship Based Outsourcing
This outsourcing model focuses on the ownership and accountability of the customer and the third party and how they manage these principles throughout the collaboration.
Staff augmentation model
Staff augmentation is similar to on-site outsourcing. This model involves hiring the outsourced team to join your in-house staff in managing internal programs.
Managed team model
In this model, both the host company and the outsourcing service provider agree to share responsibilities and determine which task belongs to whom. The client also has control over the team to ensure the desired results.
Project-based outsourcing means that you entrust your entire workload to your outsourced partner. After receiving the briefing and project specifications, the third party owns the life of the contract.
Business process outsourcing helps companies control costs, scale their operations and expand flexibly. The increasing popularity of call centers has helped businesses make savings and provide better service to their customers. Outsourcing now includes not only large corporations but also small businesses. Some startups are currently using this to create a distributed workforce. The price structure of outsourced services evolves and varies over time. The most common outsourcing pricing models are listed below.
Fixed price model (FP).
With a fixed price (FP) model, the service provider sets a standard price for its services. Depending on the customer’s wishes, this can be billed monthly or annually and covers the costs for tools and workspace.
Time and Materials (T&M) model
In IT projects, the Time and Materials Model is a popular choice. This involves bidding on a project and submitting a bid that meets the needs of the client.
Incentive-based pricing model
In this model, service providers make bonus payments for meeting specific performance goals, over and above what is specified in the Service Level Agreements (SLAs).
Shared risk-reward model
The shared risk-reward approach is similar to the incentive-based model, where there is an additional bonus when your outsourced employees reach a certain milestone in the partnership.
Clarifying which of the different types of outsourcing models to use will greatly improve the effectiveness of your partnership and determine how the connection will fare over time. For best results, do thorough research to determine which model best complements your procedures. Are you looking for a reliable outsourcing partner who can deliver your service on time and on budget? With Invensis we ensure that we take care of our customers’ requirements. Also ours outsourced services are looked after by our finance and accounting experts, who have broad expertise in accounting and compliance.