From Wikipedia, the free encyclopedia

Sales outsourcing is a way for companies to attract increased, high volumes of sales for their products or services by using a third party. The company typically uses outsourcing companies to improve sales volumes without links to the sales teams that carry out those campaigns. The company that undertakes the outsourcing normally will be paid based on the results that they are able to generate and therefore creates a mutually beneficial situation for both Client and outsource.

Full ‘sales outsourcing’ is observed where companies have an external third party sales force. It is differentiated from value added reselling or distribution in that the business model can be based on shared risk, although there are models where the outsources is paid for all of their activity – just as with a hired direct sales force, but the outsources provides rapidity, flexibility and experience. Other names for sales outsourcing include ‘indirect sales’ and ‘channel sales’.

Full sales outsourcing is different from telemarketing in that it requires direct recruitment of sales personnel with specific backgrounds for each sales campaign. Usually the sales executives will be part of a team that may include telemarketing, marketing, tools systems and methodologies as well as sales management.

Sales outsourcing firms provide accountability regarding all sales results and activities while representing the brand of the client. For the end-customer, it usually appears as if the sales team sold the product themselves rather than the sales outsourcing firm. The outsourcing firm is, in essence, an extension of the client but is responsible for all operations associated with direct sales activities, often receiving sales engineering and initial product/service training support from the client.

The sole purpose of a contract sales organization is to provide sales resource to its clients, without taking title to their products. Sales outsourcing providers includemanufacturers’ representatives, contract sales organizations, sales agents or sales outsourcing consultants. One way of organising the sales effort, especially when product delivery is erratic, is to replace or supplement internal resources with functionality and expertise brought in from contract sales organisations.

Sales outsourcing is quite different from large-scale service outsourcing, which has its advantages but also requires pro-active contract and relationship management. In addition to full sales outsourcing, many partial models are observed, particularly in large firms.

A variety of sales activities may be outsourced such as:

·         outsourcing part of the sales process, e.g. lead qualification or lead nurturing

·         outsourcing management of particular customer segments, e.g. niche segments, geographies or sectors that are difficult to reach or are culturally very different

·         outsourcing of sales of particular product or service lines (e.g. parts, maintenance), or product-related activities such as product launches.

Any of the following may also be considered as partial sales outsourcing or sales out-tasking:

·         Integrating contractors into in-house sales teams for coverage of long-term absences such as maternity leave, or general vacancy management

·         Syndicated sales – where the contracted salesperson presents complementary products from different companies on a single call to a customer

Sales outsourcing is expected to be cheaper than the fully loaded cost of employing salespeople, but calculating the cost comparison over time is far from straightforward. Nevertheless, replacing fixed costs with variable costs is attractive to budget-holders. However, unlike many forms of outsourcing, the advantages of sales outsourcing does not often come from saving costs but rather increasing revenue or providing speed of response or flexibility.

The business case for sales outsourcing should also include consideration of the cost of controlling the contract. Difficulty in measuring the link between sales activity and sales performance leads to a preference for employed salespeople. However, the issues internally are often the same and the internal hire has many other corporate “distractions” that do not occur with external resources.

Companies may also choose sales outsourcing as a means of accessing the best sales skills. Although the pejorative term “rent-a-rep” is still used, there is some evidence that contractors are perceived as good performers against qualitative as well as quantitative performance criteria. Even so, the reputational risk of third parties handling customer relationships has been observed as a factor restricting sales outsourcing. One could argue that an employee is often using a company to gain 2–3 years salary and experience whereas a sales outsourcing firm would usually be looking at a long term contract even though the staff may change during that time. So the aims of an outsourcer can be closely aligned with the aims and objectives of the contracting company.

A recent study has highlighted flexibility as an important driver for outsourcing sales.  Uncertain business environments accentuate the need to turn sales resource on and off quickly. Industries and companies undergoing rapid change may need to avoid hiring and firing costs and risks.  Contract sales organizations can absorb employment risk, enabling their clients to respond to short-term opportunities or competitor activity (see Lean Startup. However, an outsourcer may build in more of a premium to the rate or commission if excessive flexibility is required on a contract.

Contract sales organizations are growing in volume and influence, able to provide both tactical activity and long-term strategic support to their clients.

Speed of response is seen as a key reason to use an outsourcer. if a company was looking to enter a market it may take several months to recruit the local manager which then takes several months to find and office and build a team. With an outsourcer, once selected often a full working team can be operational within a matter of days or weeks.

Sales Outsourcing can also be used as a Market entry strategy and avoids Permanent establishment risk.

The experience of many organizations over the past several years demonstrates that indirect channels can be critical to expanding market coverage. This has been particularly true in the electronics, communications and high tech sectors. For example, the indirect channel now accounts for 66 percent of overall technology sales, up from 53 percent in 1997.

 

 

 

 

From Wikipedia, the free encyclopedia

In business, outsourcing involves the contracting out of a business process to another party (compare business process outsourcing). The concept “outsourcing” came from American Glossary ‘outside resourcing’ and it dates back to at least 1981Outsourcing sometimes involves transferring employees and assets from one firm to another, but not always. Outsourcing is also the practice of handing over control of public services to for-profit corporations.

Outsourcing includes both foreign and domestic contracting, and sometimes includes offshoring (relocating a business function to another country). Financial savings from lower international labor rates can provide a major motivation for outsourcing or offshoring.

The opposite of outsourcing, insourcing, entails bringing processes handled by third-party firms in-house, and is sometimes accomplished via vertical integration. However, a business can provide a contract service to another business without necessarily insourcing that business process.

 

Two organizations may enter into a contractual agreement involving an exchange of services and payments. Outsourcing is said to help firms to perform well in their core competencies and mitigate shortage of skill or expertise in the areas where they want to outsource.

In the early 21st century, businesses increasingly outsourced to suppliers outside their own country, sometimes referred to as offshoring or offshore outsourcing. Several related terms have emerged to refer to various aspects of the complex relationship between economic organizations or networks, such as nearshoring, crowdsourcing, multisourcing and strategic outsourcing.

Outsourcing can offer greater budget flexibility and control. Outsourcing lets organizations pay for only the services they need, when they need them. It also reduces the need to hire and train specialized staff, brings in fresh engineering expertise, and reduces capital and operating expenses.^[11]

“Do what you do best and outsource the rest” has become an internationally recognized business tagline first “coined and developed”  in the 1990s by the “legendary management consultant” Peter Drucker. The slogan was primarily used to advocate outsourcing as a viable business strategy. It has been said that Mr. Drucker began explaining the concept of “Outsourcing” as early as 1989 in his Wall Street Journal (WSJ) article entitled “Sell the Mailroom.”

From Drucker’s perspective, a company should only seek to subcontract in those areas in which it demonstrated no special ability. The business strategy outlined by his slogan recommended that companies should take advantage of a specialist provider’s knowledge and economies of scale to improve performance and achieve the service needed.

In 2009 by way of recognition, Peter Drucker posthumously received a significant honor, when he was inducted into the Outsourcing Hall of Fame for his outstanding work in the field.

REASONS FOR OUTSOURCING

Companies primarily outsource to reduce certain costs — such as peripheral or “non-core” business expenses, high taxes, high energy costs, excessive government regulation/mandates, production and/or labor costs. The incentive to outsource may be greater for U.S. companies due to unusually high corporate taxes and mandated benefits, like social security, Medicare, and safety protection (OSHA regulations). At the same time, it appears U.S. companies do not outsource to reduce executive or managerial costs. For instance, executive pay in the United States in 2007 was more than 400 times more than average workers—a gap 20 times bigger than it was in 1965.  In 2011, twenty-six of the largest US corporations paid more to CEO’s than they paid in federal taxes.

DIGITAL OUTSOURCING

The digital workforce of countries like India and China are only paid a fraction of what would be minimum wage in the US. On average, software engineers are getting paid between 250,000 to 1,500,000 rupees ($4,000 to $23,000) in India as opposed to the $40,000-$100,000 in countries like US and Canada.^[21] However, unlike typical sweatshops and manufacturing plants, most of the digital workforce in developing countries have the flexibility to choose their working hours and which companies to work for. With many individuals telecommuting from home, the companies that require this type of work do not need to allocate additional funds for setting up of office space, management salary, and employee benefits as these individuals are contracted workers.

FOR BUSINESS

MANAGEMENT PROCESSES

Greater physical distance between higher management and the production-floor employees often requires a change in management methodologies, as inspection and feedback may not be as direct and frequent as in internal processes. This often requires the assimilation of new communication methods such as voice over IP, instant messaging, andIssue tracking systems, new time management methods such as time tracking software, and new cost- and schedule-assessment tools such as cost estimation software.

COMMUNICATIONS AND CUSTOMER SERVICE

In the area of call centers end-user-experience is deemed to be of lower quality when a service is outsourced. This is exacerbated when outsourcing is combined with offshoring to regions where the first language and culture are different.

Foreign call center agents may speak with different linguistic features such as accents, word use and phraseology, which may impede comprehension. The visual cues that are missing in a telephone call may lead to misunderstandings and difficulties.^[24]

SECURITY

Before outsourcing, an organization is responsible for the actions of their entire staff, sometimes a substantial liability. When these same people are transferred to an outsourcer, they may not even change desks. But their legal status changes. They are no longer directly employed by (and responsible to) the organization. This creates legal, security and compliance issues that are often addressed through the contract between the client and the suppliers. This is one of the most complex areas of outsourcing and sometimes involves a specialist third-party adviser.

Fraud is a specific security issue as well as criminal activity, whether it is by employees or the supplier staff. However, it can be disputed that fraud is more likely when outsourcers are involved, for example credit-card theft when there is the opportunity for fraud by credit card fraud. In April 2005, a high-profile case involving the theft of $350,000 from four Citibank customers occurred when call-center workers acquired the passwords to customer accounts and transferred the money to their own accounts opened under fictitious names. Citibank did not find out about the problem until the American customers noticed discrepancies with their accounts and notified the bank.

INSOURCING

Outsourcing has gone through many iterations and reinventions. Some outsourcing contracts have been partially or fully reversed, citing an inability to execute strategy, lost transparency & control, onerous contractual models, a lack of competition, recurring costs, hidden costs, and so on. Many companies are now moving to more tailored models where along with outsource vendor diversification, key parts of what was previously outsourced has been insourced. Insourcing has been identified as a means to ensure control, compliance and to gain competitive differentiation through vertical integration or the development of shared services [commonly called a ‘center of excellence’]. Insourcing at some level also tends to be leveraged to enable organizations to undergo significant transformational change.

Further, the label outsourcing has been found to be used for too many different kinds of exchanges in confusing ways. For example, global software development, which often involves people working in different countries, cannot simply be called outsourcing. The outsourcing-based market model fails to explain why these development projects are jointly developed, and not simply bought and sold in the marketplace. Recently, a study has identified an additional system of governance, termed algocracy, that appears to govern global software projects alongside bureaucratic and market-based mechanisms. The study^[26] distinguishes code-based governance system from bureaucracy and the market, and underscores the prominent features of each organizational form in terms of its ruling mechanism: bureaucracy (legal-rational), the market (price), and algocracy (programming or algorithm). So, global software development projects, though not insourced, are not outsourced either