How to Develop an Outsourcing Strategy

Here are the important points to consider when developing an outsourcing strategy.

What is your sourcing strategy?

The sourcing strategy determines how the client avail the outsourcing service. If they need to outsource a well-defined process such as bookkeeping, then one service provider will suffice. But in IT outsourcing, some clients opt for multi-sourcing deals to get best-of-breed processes from niche service providers.

Single Source

As the name suggests, the organisation outsources to a single service provider. This is ideal for first-time outsourcers and SMEs (small and medium enterprises).


An organisation outsources to a number of service providers. This is common among IT companies who bundle services together and tender the contract to a niche service provider. This produces what the industry calls "towers". These towers are managed through service integration. The outsourcing client have the option to assign a Guardian Vendor to manage end-to-end service delivery.

Where should you outsource?

Outsourcing is not always offshoring. Clients can choose from different outsourcing locations or utilise all of them through a multinational service provider.


Outsource to a service provider in a neighbouring country or the same region.


Outsource to a service provider within the country where the business is located.


Outsource to a service provider in another country that is geographically far from where the client is based.

What kind of outsourcing relationship do you want to have?

The outsourcing relationship has a huge impact on the client's goals. It also determines the development of the outsourcing engagement.

“Lights on” Outsourcing

This relationship mainly revolves around cost savings. This involves a basic execution of outsourced services wherein governance is enforced through service level agreements (SLAs).

“Efficient” Outsourcing

This relationship still aims to reduce costs, but the outsourcing client includes a management plan. The client invests in specialised skills to implement efficiency programs for continuous improvement.

“Strategic” Outsourcing

This is a mature outsourcing relationship used by experienced clients. Outsourcing decisions are based on internal needs and goals other than cost savings. Clients collaborate with staff to improve business outcomes. They have a flexible approach in setting SLAs, milestones, etc. Performance metrics of offshore or outsourced staff are adjusted to changes in the scope and goals of the outsourcing project.

How will the service be delivered?

Service delivery models, as the name suggests, determine how the service provider will deliver the service to the client. These are the current delivery models, but there are other variations. Clients and service providers can combine or modify models to suit their needs.

Managed Services

The service provider handles day-to-day management activities. This is common in IT outsourcing, wherein the business can offload specific IT operations to a managed services provider.

Project-based Outsourcing

As the name suggests, the client outsources on a project basis. The service provider acts as a partner to the client.

Offshore Staffing

This is also called staff augmentation. The client hires offshore staff to perform certain tasks and support in-house efforts. The service provider is responsible for recruitment and training.

Captive Centres

In the beginning, businesses built their own captive centres around the globe, which are then consolidated to become mega service centres. These global centres are run as independent businesses with their own budget and bottom line.

Today, businesses have turned to offshore companies to set up offshore captive centres. Business process outsourcing (BPO) providers deliver the company's internal services. They are performed offshore, but not outsourced to a third party.


The service provider operates the business for a period of time, then transfers the operations to the client.

Global Delivery

The service provider distributes and manages services across multiple locations. They can deliver service requirements across the globe.  If disaster strikes in any of their locations, they can immediately transfer work to another so that business processes are not interrupted.

Hybrid Outsourcing

This involves a mix of onshore and offshore services to deliver results. For example, a small team will be sent to the client at the start of the outsourcing engagement.

Onsite, software engineers are hired as temporary foreign workers on a project basis to gather requirements and develop the user-interface. Offshore, another team at the service provider's facilities provides coding and testing. The onsite team leaves when they are finished, then support and maintenance are done offshore. 

The term “hybrid” can also be attributed to new models that were made through a combination or modification of existing ones.  For example in  Vested outsourcing, the client and service provider focus on shared values and goals. Both parties agree on a desired outcome that can be measured to determine if the deal is successful.

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