“Do what you do best and outsource the rest.” Peter Drucker, a management consultant coined this slogan in the 1990s to advocate outsourcing as a viable business strategy.
Today, companies embrace outsourcing as a way to:
- lower costs,
- improve efficiencies, and
- gain speed.
They outsource supporting functions within their businesses so they can focus their resources more specifically on their core functions, thereby gaining competitive advantage in the market.
By outsourcing, companies could free up time and personnel which can be redirected to critical functions that will lead to their optimal performance.
Hence, with the drive to save costs, companies may decide to outsource services onshore (within their own country), nearshore (to a neighbouring country or one in the same time zone), or offshore (to a more distant country).
Companies that decide to outsource rely on the third-party providers’ expertise in performing the outsourced tasks.
They outsource a number of tasks or services like information technology services, customer service and call service functions. They can also outsource manufacturing processes, human resources tasks and financial functions such as bookkeeping and payroll processing etc, to a third-party provider so that they can dedicate their time and energy to their core function while the third party provider focuses on the supporting task, thus doing it better, faster and cheaper than the hiring company could.
In this article therefore, we will take a look at what outsourcing is, the different types of outsourcing, and go further to discuss the relevance or importance of outsourcing.
What is Outsourcing
According to Cambridge dictionary, outsourcing is a situation in which a company employs another organization to do some of its work, rather than using its own employees to do it.
In other words, outsourcing is a business practice in which services or job functions are hired out to a third party on a contract or ongoing basis. In this case, the third party provider arranges for its own workers to perform the task outsourced to them either onsite at the hiring company’s own facilities or at external locations.
Therefore, outsourcing is an agreement in which one company hires another company to be responsible for a planned or existing activity which otherwise is or could be carried out internally, i.e. in-house, and sometimes involves transferring employees and assets from one firm to another.
The biggest difference between outsourcing and in-house is with regard to the difference in ownership: outsourcing usually presupposes the integration of business processes under a different ownership, over which the client business has minimal or no control. Furthermore, outsourcing can involve using a large third-part provider or hiring individual independent contractors, temporary office workers and freelancers.
Most companies therefore outsource because they are unable to hire in-house, full-time employees with the specialized skills and experience needed to perform certain jobs.
Types of Outsourcing
Outsourcing is an essential practice for running a successful business as there are specific points where a company needs help or guidance from other companies that excel at it. So, it is necessary to understand the different types of outsourcing to choose the appropriate type of outsourcing that will perfectly meet your business needs. Knowing the different types of outsourcing therefore will guarantee you make the right decision.
1) Project-Based Outsourcing
Project-based outsourcing involves commissioning an external company for a given project. The project can be an ongoing project at a particular implementation stage because a company lacks the human resources to implement it or a project from scratch.
Companies leverage on project-based outsourcing to generate savings by reducing the time needed to complete a project. In addition, if a company does not have the right experts on their team, they can get help from external specialists.
Another advantage of project outsourcing is that a company doesn’t have to put effort into training someone to work on a given project. Furthermore, entrusting specialists to handle their projects will result in faster implementation time and high quality.
2) Manufacturing Outsourcing
In this kind of outsourcing, businesses hire other companies to build parts or the entire product or project.
Fewer companies have the ability to actually invest in and continuously upgrade equipment, personnel, and process technology necessary in order to compete in a market where product lifecycles are shrinking. They simply lack the economies of scale that allow them to compete with larger competitors without the help of third-party companies.
Therefore, many believe manufacturer outsourcing is also essential for small and mid-size businesses to survive today’s non-stop competitive market.
3) Business Process Outsourcing (BPO)
Business Process Outsourcing involves outsourcing a particular business process, such as HR, IT, accounting/payroll, customer service, and other tasks, to an external provider. Of course, the main reason why companies use this type of outsourcing is to save money.
For example, a small business that is intending to launch a new product with high inquires expectations may consider outsourcing the chat or voice calls to a third-party customer service representative.
4) Legal Process Outsourcing (LPO)
Legal process outsourcing is exclusive to legal services. A company without an in-house lawyer could outsource legal research, contract management, document review, and other law-related tasks to a third-party law firm or lawyer.
5) Knowledge Process Outsourcing (KPO)
Knowledge process outsourcing tackles knowledge-based processes, such as data analysis, Research and Development, or market research. Larger enterprises usually have their own research and development teams, but smaller companies may not.
Outsourcing to Research and Development firms like Centre for Research in Enterprise and Action in Management – CREM Consulting not only guarantees that the process will be done properly by experts but also saves the company money because they can select the level of assistance they need and purchase outsourced services based on their needs.
6) Recruitment Process Outsourcing (RPO)
Recruitment process outsourcing (RPO) is a form of business process outsourcing (BPO) that involves transferring the ownership and responsibility of all or part of a company’s recruitment functions to an external service provider.
Hence, an RPO provider offers services such as talent consulting, recruitment marketing, candidate sourcing, screening, interviewing, hiring, onboarding, and exit interviews.
The main goal of recruitment process outsourcing is to help companies optimize their talent acquisition process by providing them with access to the best talent, technology, and expertise in the market.
RPO can also help companies:
- reduce their recruitment costs,
- improve their time to fill,
- enhance their employer brand, and
- increase their employee retention.
Therefore, by outsourcing some or all of your recruitment functions to the Centre for Research in Enterprise and Action in Management – (CREM Consulting), you can benefit from our expertise, technology, resources, and network because with our years of experience in RPO, we will help you streamline and optimize your recruitment process.
7) Information Technology Outsourcing (ITO)
Information Technology outsourcing involves subcontracting an outside organization to take care of all or part of a business’s IT needs, which range from web development, application management, software or game development, to network maintenance and support.
Traditional Companies may find it hard to stay current with the ever-evolving world of technology. If a company wants to build a website, it would make sense to outsource the job to someone (or a web development company) who can build a website quickly and properly.
Therefore, for many companies, it ends up being less expensive to contract a third party IT management team than to build an in-house one.
8) Facilities Management Outsourcing
Companies often contract with third-party agencies or companies to handle security, housekeeping, or janitorial services, maintenance, landscaping, electrical work, and other similar tasks. When they do this, they’re outsourcing facilities management to another company.
Importance of Outsourcing
For most companies, having the capacity to rapidly change to meet client needs and market patterns and the ability to scale up and scale down services based on business demands are valid reasons to find an external service provider.
- Generally, outsourcing can offer greater budget flexibility and control by giving companies the opportunity to pay for the services and business functions they need, when they need them.
- Furthermore, outsourcing relieves companies from the burden of hiring and training specialized staff by making available specialized expertise at a decrease capital, operating expenses, and risk.
- Also, outsourcing is said to help firms to perform well in their core competencies, fuel innovation and mitigate a shortage of skill or expertise in the areas where they want to outsource.
In conclusion, the goal of outsourcing services is to reduce expenses and optimize performance while still upholding quality requirements.
Therefore, Outsourcing gives smaller companies a way to compete with bigger companies that have already established their processes and may have more resources. In short, outsourcing is an ideal strategy for staying ahead of the competition in today’s evolving market.
If you would like to talk about outsourcing with our specialists, kindly make an appointment with us (CREM Consulting) at your convenient time and we would respond immediately. We have been implementing outsourcing projects for several years and we would be happy to render our outsourcing services to you.
