Customer Service Glossary

What Is Outsourcing?

Outsourcing is a common practice that occurs when a company contracts a third-party individual or organization to perform specific jobs, manage tasks, or assist with services. In many cases, organizations turn to business process outsourcing (BPO) or knowledge process outsourcing (KPO) providers for “non-core” functions, such as human resources management, data entry, financial services like accounting and payroll management, information technology support, and customer service operations.  

After a business hires a third-party organization, the service providers oversee every aspect of the outsourced tasks, including: 

  • Personnel recruitment.
  • Training.
  • Employee management.
  • Day-to-day operations.
  • Project management.
  • Risk management.

By outsourcing jobs to a third-party provider, companies can access the skilled workforce they need to achieve organizational goals while cutting labor costs. At the same time, they can focus their resources on the operations or activities that give them a competitive advantage over other companies. 

Why Is Outsourcing an Important Strategy for Customer Service Operations?

When companies decide to outsource their consumer services teams, they may do so for several reasons. First, they may not have the office space or technical equipment they need to support a new department. Secondly, they may not have a qualified talent pool of local, full-time employees to draw from within their markets. 

Thirdly, they may opt to shift the obligation of regulatory compliance to an experienced management company. However, in many cases, companies transition to outsourced customer service representatives to improve organizational innovation. Businesses often hope to learn from their new partners while leveraging their focused skills, resulting in greater efficiency, improved savings, and faster turnaround times.

Other benefits of outsourcing customer service operations include: 

Related: Pros and Cons of Customer Service Outsourcing

Lower Labor Costs

The Harvard Business Review found that shifting non-core operations such as client support to a less expensive workforce can help companies cut the price of labor by 20-30%. In addition, companies do not have to provide outsourced employees with benefits, such as health insurance or parental leave. 

Expanded Talent Pool

Outsourcing allows companies to access a global talent pool of skilled workers. BPO service providers ensure that their employees receive the training they need to assist clients across various industries, including manufacturing, technology, and online sales. As a result, companies can enjoy improved efficiency, knowledge, scalability, and client satisfaction. 

Faster Response Times

Third-party organizations can improve a company’s response times, especially during seasonal spikes, such as holiday sales or product launches. Rather than limiting their operations to in-house employees, businesses can use a BPO provider that can shift its agents between contracts to manage high-volume accounts. 

Enhanced Risk Management

Another benefit of outsourcing includes enhanced risk management and mitigation services. Companies in highly regulated industries may find that third-party service providers, unlike in-house staff, specialize in risk management and compliance.

Types of Outsourcing

Business process outsourcing can take a variety of forms that suit the needs of different organizations. That said, outsourced jobs typically fall within one of three broad categories: 

1. Onshoring 

2. Offshoring

3. Nearshoring

Rather than moving operations out of the country, onshoring shifts functions such as client service operations to a lower-cost area in the same country. Offshoring moves operations to third-party contractors overseas, such as a client support call center in a developing country like India or Malaysia.

Finally, nearshoring relocates non-core functions to nearby countries, such as transitioning jobs from the United States to Mexico or Canada. 

Why Companies Outsource Customer Service

Both large-scale and rapidly expanding companies turn to outsourcing as an effective strategy for their client support needs. Outsourced customer service teams typically consist of high-quality representatives with a vast knowledge of several industries. 

Due to their specialized training, outsourced employees can help customers solve technical questions about their products. In addition, they can address logistical queries and provide purchasing assistance, streamlining operations and improving human capital management.