Outsourcing and offshoring are easily confused. The concepts are often used interchangeably, but in reality, they are very different business concepts with distinct pros and cons that can sometimes even be layered together. When determining the best option for your organization, it’s important to understand both approaches.
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When you move internal operations to a third party, regardless of geographical location, it is called outsourcing. Forbes further defines it as, “To move transactional activities to the experts in order to give an organization the capacity to focus on its expertise.” Examples include having a third-party supplier for one specific piece of a larger product, like microchips for a computer, or contracting with an external company to perform basic data entry so internal employees can concentrate on higher-level, value-added tasks.
In the AP world, this often takes shape in partnering with a third party to perform data intake into your AP automation platform or ERP system. DataServ provides this service with our Digital Mailroom, where we handle all your incoming documents, regardless of format. Through scanning and OCR, we make them available to you digitally – eliminating manual data entry on your end.
Pros to Outsourcing:
- Lower costs – Companies that are highly specialized in one area can often produce those goods and services at a lower price for the same or better level of quality than if those goods/services were produced in-house.
- Increased capacity – By freeing up your staff from outsourced tasks, they have increased time and resources to accomplish additional tasks and add more value to your organization.
- Scalability – When outsourcing, you generally only pay for the goods or services you need. You aren’t responsible for employee salaries and benefits during downtimes. You can scale up and down as needed.
Cons to Outsourcing:
- Less control – When you outsource, you have less control (or sometimes no control) over the process or deliverables. You run the risk of delays, changes in quality, staff turnover, and more – all of which will be outside of your control.
- Staff reduction – The idea of layoffs is unsettling and demoralizing to staff. Outsourcing, perhaps unfairly, is often linked to in-house layoffs. Even if you have no plans to reduce staff, introducing outsourcing to your organization can still ignite that fear.
- Increased strategic risk – Many companies are hesitant to rely on third parties for strategic, business critical operations.
Offshoring takes a different approach. It involves the relocation of specific company activities or lines of business to another country. The goods or services are still produced by your company, but at your company’s location in a different (often lower cost) country. Examples of this would be a U.S.-based car manufacturer moving one of its factories to China, or a Canadian company relocating its internal IT support team to India.
In the AP industry, this is commonly seen when a team that is located in a different country – but is still a function of your organization, not a third party – handles tasks like expense report approvals or invoice data entry and matching.
Pros to Offshoring:
- Cheaper labor and/or materials – Inexpensive labor pools and low costs for materials and manufacturing are often the biggest drivers for choosing to offshore. In addition, the labor pools are often larger and provide more options, and skillsets are growing as more companies relocate and train employees.
- More control – Because offshored tasks are still internal functions of the company and not a third party, business leaders have more control over the deliverables.
- 24-hour service and support – Businesses can take advantage of locations in different time zones to keep operations open around the clock.
Cons to Offshoring:
- Lower quality – The quality of work can be inferior in offshore locations due to differences in training, resources, and expectations. In addition, offshore teams may not fully understand laws and regulations in the company’s home country, which could result in errors and non-compliance – particularly in AP, finance, and tax functions.
- Less visibility – When a team is located in a different country and time zone, it is more difficult to monitor employees and their output than it is for local teams.
- Increased socioeconomic or political risk – When offshoring a function of your company, there is always the inherent socioeconomic and/or political risk of operating in a foreign country, which can be largely unknown or unpredictable.
What’s the Best Fit for My Organization’s AP Tasks?
Only you and your organization can answer that question, but sometimes the solution is not one or the other. A hybrid approach – driven by automation – may offer benefits that you haven’t yet considered.
By implementing an AP automation solution like DataServ, you will receive the benefits of outsourcing upfront – without losing any control over the process. AP automation lowers costs by replacing manual processes, like invoice keying and matching, with advanced technology, like OCR and AutoVouch™. It frees up your staff to focus on value-added tasks, such as reporting and analytics, developing supplier relationships, negotiating early-pay discounts, and strengthening fraud controls. In addition, you can scale automation services up and down as needed.
With automation driving the process, you can outsource or offshore your remaining manual tasks, like scanning and exception handling. When you partner with DataServ, we provide your organization with the advantages of both outsourcing and offshoring at the same time. For example, if you outsource your document scanning and OCR tasks to DataServ, you will receive the benefit of lower costs, thanks to our own offshore operations center.
DataServ also provides global resources so that your users are fully supported and receive a consistent user experience, no matter where they are located. Our SaaS solutions include currency conversion capabilities, a global approval matrix, compliance with local and foreign eInvoicing mandates, browser language choices, and 24/7 support.
Determining the right combination of outsourcing, offshoring, and automation is a delicate balance – but if done correctly, it has the potential for huge cost, time, and resource savings for your organization.
We can help you find the right outsourcing, offshoring, and automation approach for your organization. Contact us.