outsourcing terminology 101

Outsourcing Terminology 101: What SMEs Should Know

The capacity of corporate world to think of new confusing words and acronyms never stops to amaze me.

The once black and white world of outsourcing and offshoring is a good example. It used to be a simple case of “Do I” or “Don’t I”. Now, you will need to choose between BPO, KPO and CPO, a BOT, co-sourcing, seat leasing or managed captive solution and nearshore or offshore.

I am not even scratching the surface yet on the terms invented by the industry. Which everyone is trying to differentiate themselves from their competitors, but do the same thing.

For the small business owner looking to dip their toe in the outsourcing. It can be a foreign language as alien as Tagalog (the national language of the Philippines). Fortunately, you do not have to learn either with this short and simple guide to what you need to know. Knowledge on outsourcing terminology is important for any business owner, no matter what size.

As soon as you peek through the door of the offshoring industry. When all is said and done, there are just three core components in any outsourced solution. The facility or office, technology and people. The solutions offered by suppliers are all variations on this theme:

#1 Build, Operate, Transfer (BOT)

This is advisable if you have hundreds or thousands of FTE’s worth of work. It is unlikely to be a serious consideration as it involves a third party setting up the entire business on your behalf. They will do everything before transferring it to your ownership.

From building the facility, installing technology, then setting up and managing. Sometimes referred to as captive or managed captive.

#2 Traditional Outsourcing

Unlike BOT, Traditional Outsourcing is where you pay a supplier to do everything. They have the facility, technology and people. But you provide the work and know-how relevant to your business. But operations management is the responsibility of the vendor.

Billing is usually time-based – per FTE hour or per call minute.

#3 Seat Leasing

In this model, you rent ‘seats’ from a vendor (facility and technology). But you are responsible in hiring and managing your own staff and operation.

In a foreign country like the Philippines your company would need to be incorporated locally to be an employer. Billing is usually based on a fixed seat cost per month (around $600 per seat in Manila) with phone charges billed at cost. This is also referred to as co-sourcing by many vendors.

#4 Staff Leasing

This is a much more viable option for the small business owner who has a minimal FTE need. The vendor provides the facility and technology (on your behalf). Then they will hire a dedicated personnel to your account.

Also billing varies from a fixed monthly cost for everything to a split cost for the ‘seat’ and the FTE. This is sometimes called a virtual captive model.

In conclusion, the advantages and disadvantages of each model depends on what you need, how long you will need it and your budget. The core element of the tour is to help entrepreneurs understand these options.

Mike O’Hagan ‘tell it like it is’ demystification of outsourcing and offshoring. He made Mike’s Business Tours a must for any small business owner considering a move overseas.