What is Co-sourcing and How Does It Work?

You’ve likely heard the terms outsourcing and freelancing thrown around, and maybe you’ve even used both.

You know they promise cost savings and access to great talent, but you’ve also seen the downsides: The lack of control, the feeling of losing institutional knowledge, and projects that technically finish but miss the strategic mark.

You start to realise that simply ‘offloading’ a function often creates more headaches than it solves. That’s why businesses are strategically shifting their focus.

In fact, a Deloitte study found that over half of surveyed organisations (57%)cited achieving greater focus on their main LOB as their primary driver for engaging with external service providers.

You need a model that gives you the best of both worlds: Specialised, external expertise combined with your internal control and cultural integration. That model is co-sourcing. It’s time to stop handing over the keys and start driving the process together.

Table of Contents

• What Does Co-sourcing Mean?
  
• Co-sourcing vs Outsourcing
  
• What Business Processes Can You Co-source?
  
• 5 Benefits of Co-sourcing
  
• How to Implement a Co-sourcing Model Effectively
  
• Outsourced Staff as Your Co-sourcing Partner
  
• FAQs

What Does Co-sourcing Mean?

Co-sourcingis a collaborative business model where your organisation and an external service provider share both the control and the responsibility for a specific business function.

The primary goal of co-sourcing is to fill specific capability or knowledge gaps within your existing structure while maintaining operational oversight. You leverage the provider’s specialised staff, tools, and infrastructure, but your internal managers retain strategic control over the outcomes, quality, and cultural alignment.

You don’t simply buy a result, but you embed the external expertise directly into your daily operations. This means the external team member is trained on your proprietary systems, attends your stand-up meetings, and directly reports to your department head, just like any local employee.

The key differentiator is that your organisation retains high-level control and ownership of the process and the intellectual property generated, which is critical for long-term strategic growth.

Co-sourcing vs Outsourcing

Co-sourcing and traditional outsourcingare distinct models designed to solve different business problems. Choosing the wrong model for a core business function can jeopardise your quality control, stifle innovation, and lead to massive knowledge loss.

Traditional outsourcing is often perceived as a ‘hands-off’ approach. But there are plenty of arguments otherwise and some misconceptions. 

But for the sake of comparison, general outsourcing is where you contract with a vendor for a service, and they deliver that service independently. They use their processes, their technology, and their management to meet the service level agreements (SLAs).

Co-sourcing is a ‘hands-on’ partnership. It’s about combining your intimate knowledge of your business with the provider’s specialised execution skills.

Here’s a breakdown of the critical distinctions:

What Business Processes Can You Co-source?

The co-sourcing model shines brightest when you need specialised expertise for tasks that require deep institutional knowledge, continuous process refinement, or integration with your core product. These are the functions you cannot afford to hand off entirely.

Here are some examples of high-value co-sourcing functions:

• Finance and Accounting– You handle approvals and budgeting, while your partner manages bookkeeping, accounts payable, or audits.
• IT and Cybersecurity– Your in-house IT team focuses on strategy and system architecture, while co-sourced experts manage 24/7 monitoring or incident response.
• Human Resources– Keep internal control over recruitment policies while external specialists handle talent sourcing, onboarding, or employee benefits.
• Marketing– Your team manages brand strategy while co-sourced experts handle SEO, content marketing, and campaign analytics.
• Customer Support– Internal managers maintain customer experience standards while external agents handle day-to-day inquiries.
• Procurement– Retain approval rights while a co-sourcing partner manages supplier evaluation, contract management, and logistics.

5 Benefits of Co-sourcing

You don’t adopt a co-sourcing model just to achieve strategic advantages that your competitors who rely on traditional outsourcing simply miss out on:

1. Retention of Management Control

With co-sourcing, you never relinquish control over your process, your product, or your quality standards. Your local manager can direct tasks, correct course, and provide feedback in real-time.

This level of oversight ensures that deliverables not only meet technical specifications but also perfectly capture the spirit and intent of your business requirement.

A study by Alan D. Smith from Robert Morris University cited losing control over an outsourced activityas one of the major risks and reasons why partnerships fail; co-sourcing solves that.

2. High Strategic Capability Acquisition at Lower Cost

Co-sourcing allows you to hire senior, specialised professionals that you cannot find locally, or cannot afford locally, and embed them directly into your operations.

By engaging a partner in a cost-optimised global hub like the Philippines, you can often save up to 70% on the salaryand overhead costs of comparable local roles.

You’re not just buying cheap labour, but also acquiring expensive, specialised expertise strategically. This cost optimisation frees up capital to invest in your core revenue-generating activities.

3. Accelerated Scalability and Operational Flexibility

As a growing business, you face unpredictable demands. You might land a huge client, necessitating ten new support staff immediately, or you might need a new product development team of six developers tomorrow.

Co-sourcing providers already have professional pipelines, infrastructure, and HR processes in place. They can mobilise and onboard a fully trained, dedicated team member within four to six weeks, compared to the six-to-twelve-month hiring cycle common for specialised local roles. 

This rapid, flexible scaling power is essential for businesses targeting aggressive market growth.

4. Seamless Cultural and Process Integration

The co-sourcing provider handles the local administrative burden (payroll, compliance, infrastructure), but your team handles the cultural integration. The co-sourced staff work with your systems, your project managers, and your local team members every single day.

This daily, continuous exposure fosters a strong sense of team unity and loyalty, drastically reducing the risk of communication breakdowns and team morale issues common in distanced outsourcing relationships.

The result is a unified team where everyone shares the same mission.

5. Increased Knowledge Retention

When you use a freelancer or a project-based outsourced vendor, the critical knowledge they acquire about your systems, clients, and processes walks out the door when the contract ends. 

With co-sourcing, the staff member is dedicated to your organisation for the long term. They become a permanent, loyal repository of institutional knowledge, continuously building on their expertise within your specific environment.

How to Implement a Co-sourcing Model Effectively

Adopting co-sourcing requires planning and alignment. Here’s how to ensure success:

1. Define Objectives Clearly. Start by identifying what you want to achieve, whether that’s cost reduction, efficiency, expertise, or scalability. Document which processes you’ll share and what KPIs define success.
2. Choose the Right Partner. Look for a partner with a proven track record, transparent communication, and cultural compatibility. Evaluate their certifications, references, and case studies.
3. Set Clear Roles and Responsibilities. Clarify who manages what. Create process maps that show where tasks begin and end for both teams. Avoid overlap or grey areas that can cause friction.
4. Establish Communication Protocols. Regular meetings, shared project tools, and open feedback channels are critical. Use collaboration platforms like Slack, Asana, or Notion to maintain visibility across teams.
5. Integrate Compliance and Security Standards. Ensure your co-sourcing partner follows industry regulations and data protection laws. For sectors like finance or healthcare, compliance should be robust.
6. Measure and Improve Continuously. Set up metrics to track performance. Review reports monthly or quarterly, and make adjustments based on outcomes. Co-sourcing is most effective when it evolves with your business needs.

Outsourced Staff as Your Co-sourcing Partner

Outsourced Staff has become a trusted partner for Australian businesses seeking a balanced approach to outsourcing.

With expertise across accounting, marketing, customer service, and IT, we offer co-sourcing solutions that align with your internal operations. You maintain control, while we handle execution with efficiency and precision.

Our approach focuses on collaboration, transparency, and measurable outcomes. Whether you need a full-time virtual assistant or a specialised finance team, we adapt to your workflow and tools.

Partnering with Outsourced Staffmeans gaining an extension of your team that works with you, not for you.

FAQs

Is co-sourcing more expensive than traditional outsourcing?

Not in the long run. While the initial setup for a dedicated co-sourced team member might involve a higher fixed monthly commitment than paying a transactional rate for a project, co-sourcing typically offers far greater long-term cost-efficiency and ROI.

You save significant capital by avoiding the 70% higher labour costs of local hiring. And because you retain direct control and institutional knowledge, you drastically reduce expensive rework, project delays, and the cost of having to continuously retrain new staff, which plague traditional, low-control outsourcing models.

How can I ensure high data security and compliance in a co-sourcing model?

Data security is a shared mandate. You ensure security by choosing a professional co-sourcing partner who treats compliance as a core competency.

Look for providers who maintain internationally recognised certifications like ISO 27001 for information security management and who can demonstrate compliance with your home country’s specific privacy regulations (e.g., GDPR, HIPAA).

Since the staff are dedicated, you can enforce your company’s enterprise-level security protocols directly, which is impossible to do with independent freelancers or low-commitment vendors.

What size of business should consider implementing co-sourcing?

Any business struggling with scalability or skill shortages should consider co-sourcing, but it’s particularly beneficial for small-to-medium businesses (SMBs). SMBs can’t afford the high initial capital expenditure of local expansion or the long recruitment times for specialised roles. 

Co-sourcing instantly gives SMBs access to global, highly skilled expertise and the operational infrastructure of a large corporation, allowing them to compete at a higher level without taking on crippling financial or administrative risk.