Outsourcing - A corporate strategy, with pros and cons
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When companies grow and new areas of responsibility arise, managers have two options: Either they hire appropriate staff, or they outsource the work.
Those who obtain some of their human resources from third-party providers can plan more spontaneously and benefit from knowledge that is not available within their own company. At first glance, this sounds like a dream.
But unfortunately, in addition to all the advantages, personnel outsourcing also has its downsides. Not every task belongs in "outside hands" and outsourcing often costs a lot of money. So when is it a good idea to employ third-party providers for certain tasks and when would you be better off investing in in-house resources?
Definition: What is outsourcing?
Through the terminology (outside, resource and using ) the business strategy outsourcing is explained very quickly. It is the outsourcing of functions, tasks and entire projects that were previously realized within the company. The outsourced company, or individual, is an expert in the outsourced area and can offer high quality work.
For whom is outsourcing suitable?
Outsourcing is suitable for anyone who cannot perform certain tasks in a company or does not want to perform them themselves for various reasons. This applies not only to large corporations, but also to SMEs and Start-Ups. Furthermore, sole proprietors or freelancers can also make use of outsourcing in order to be able to concentrate more on their core business.
What are the pros and cons?
Pros
Cost reduction:
Outsourcing certain activities to external parties usually results in a reduction of overall costs within the company. This comes about because specialized service providers can take advantage of economies of scale in production, which makes the service provision process more favourable for them. From the perspective of the outsourcing company, the following rule of thumb applies: Outsourcing makes sense if it results in a cost saving of at least 20 percent compared to in-house service provision.
Improving quality:
Outsourcing the provision of services to specialized third parties often also results in an increase in the quality of the service to be provided.
Time savings:
While internal employees would still have to familiarize themselves with the subject matter, the external expert can already deliver (high-quality) results.
Increase in effectiveness:
By outsourcing secondary functions, companies have the opportunity to focus more on their core competencies again. This, in turn, is usually also accompanied by an increase in effectiveness and productivity.
Flexibility:
There are phases, with economic fluctuations, conditional crises, geopolitics, industry-dependent structural change or a general economic upturn or downturn. In these phases, it is important for companies to be able to react flexibly. This usually works better with external forces.
Reducing risks:
Against this background, it can also be said that outsourcing can reduce risk to some extent. This is particularly noticeable in crisis situations.
Focus on strategic projects:
The resources gained by outsourcing processes can be used to focus more on strategic projects.
Cons
Dependence:
By opting for outsourcing, the company enters into a relationship of dependency with the respective service provider and is dependent on its proper performance. In addition, the quality of the outsourced processes can only be influenced to a limited extent.
Contractual commitment:
Since outsourcing contracts are usually long-term, companies do not have the option of switching quickly to a low-cost provider.
Work climate:
The decision to outsource often has a negative impact on the working atmosphere, as employees frequently see this decision as a disregard for their own abilities and may even fear for their jobs. Therefore, when outsourcing decisions are made, transparent communication to one's own employees is an important factor in maintaining a positive atmosphere in the company.
Knowledge loss:
The decision to outsource processes is linked to a possible loss of knowledge, as the company loses relevant experience in the respective area.
Communication effort:
Working with an external service provider results in a higher communication effort, which can be more complex and lengthy depending on the service complexity, its location and accessibility. Clear and regular agreements are an essential part of ensuring the success of outsourcing.
Data protection:
Since outsourcing processes involves the transfer of sometimes sensitive internal information, high data protection requirements must be met.
Ten tips for successful outsourcing!
- clearly define tasks and areas
- put communication first
- sufficiently illuminate risks in advance
- outsourcing must result in a financial benefit
- pay attention to clearly defined agreements
- choose the right service provider for you
- contracts must not be inadequately drafted
- make sure that your own employees are not neglected
- make sure that the period of notice for termination of the contract is manageable
- despite outsourcing, plenty of expertise must remain within the company
Conclusion
Outsourcing is a business strategy that can relieve management of complicated tasks, especially when setting up a business. The benefits sound tempting for any company, but without a well thought-out structure, outsourcing can also become a major risk. Outsourcing the right tasks and finding the right partner - this selection process requires the utmost caution, because wrong decisions can not only result in high costs, but also jeopardize important project goals or even the company's success.
At Beceptum, we help you set the right course from the outset and bring together the most suitable experts with the companies in line with requirements, especially in the IT sector. In doing so, we understand that the demand for developers and IT experts is always a new combination of single project or long-term project, on/off or nearshore team and diverse technologies and requirements. With BECEPTUM Expert Services we therefore offer you the possibility to decide whether we arrange suitable partners for you, act as a singular contractual partner with several partner companies or take over the entire project management.
