What Is Outsourcing? A Brief Introduction

Outsourcing can attract significant benefits to your business, but it comes with significant challenges and risks when managing and negotiating outsourcing relationships. 

Here, we will break down everything you would like to know to ensure the success of your IT outsourcing initiatives. We will discuss why we should outsource, examples of outsourcing, their advantages, disadvantages, and a lot more.

Before that, we will describe outsourcing to understand it better.

Let’s get started!

What Is Outsourcing?

A practice that companies undertake as a cost-cutting measure is outsourcing. It’s a business practice that a company hires an outside party to perform some services or produce goods performed in-house by its employees and staff. 

Here, the job functions and services are conducted by a third party. 

An outsourcing initiative through a technology provider can include a wide range of operations in the IT sector. 

Companies may outsource IT services onshore, nearshore, or offshore. Most people choose offshore and nearshore to save costs. 

Why Outsource?

Sometimes, a company witnesses growth at a high rate where it finds its internal staff incapable of supporting it. So, to maintain a pace, the company chose to hire an experienced workforce from a 3rd-party firm to deploy as required and where required in its operations without disturbing its business flow. 

Also, a company may need to accomplish the processes that demand a short time to complete, making it more efficient to hire an outsourced, temporary team to achieve that project. This way, there would be no need to invest money, time, and efforts in training and maintaining internal staff. 

Moreover, outsourcing companies usually provide management-level employees with their work teams making internal employees free to pick other tasks to complete. 

Some Examples Of Outsourcing

Outsourcing may significantly impact various sectors, such as manufacturing. 

For example, in countries like Bangladesh and China, manufacturers have outsourced jobs to workers. 

You can call this practice “offshoring” that embraces outsourcing to a third party in a country.

Outsourcing is not restricted to manufacturing jobs. Companies outsource customer service jobs looking for ways to diminish costs like computer programming and call centers jobs.

Outsourcing may also include buying components from another source, like parts for computer equipment. Sometimes, brands purchase the components for less than what it may cost from the companies manufacturing those components themselves. 

A good example here is Apple. Its products are crafted in the US, and third-party vendors design some.

You may outsource IT services also. For instance, software-as-a-service (SaaS) and cloud computing provide companies access to the computer services and tools managed once in-house by IT departments of companies. 

Advantages & Disadvantages Of Outsourcing

Advantages Of Outsourcing

Outsourcing can assist avoid the time-taking process of training and hiring new staff while facilitating the businesses to flourish. 

1. Cost Saving

Sometimes, outsourcing can reduce costs. 

For example, a company may need to lower its labor costs by hiring freelancers who don’t get benefits or need office space, and that’s why it may be more reasonable than hiring full-time employees. 

2. Staffing Flexibility

It may be more cost-effective for some firms to hire outside contractors for a short time when demand is high than hiring a new staff that may not prove to be affordable.  

3. Logistical Ease

Outsourcing services, like customer support and shipping, makes more sense sometimes from a logistical outlook. Such intermediaries allow companies to offer essential services when their full-time staff is unavailable outside regular business hours. 

4. Target Core Competencies

Outsourcing permit companies to temporarily expand during high demands while facilitating their staff to target the aspects that made the business a success.

5. Specialization

While many firms prefer skilled staff members, it mostly makes sense to hire specialists rather than hiring newbies. An expert would hold the caliber to execute a specific job quickly without delaying routine operational jobs. 

Disadvantages Of Outsourcing

While outsourcing comes along with various advantages, some disadvantages also exist. Let’s discuss them:

1. Security Vulnerabilities

Security plays an essential role in outsourcing. Various outsourcing firms include 3rd party organizations’ access to sensitive business data, confidential details, trade secrets, and other critical details to perform contracted functions. 

2. Hidden Costs

While considering independent contractors to hire, you can save money. But, outsourcing services may arrive with hidden costs, like last-minute changes in the supply chain. In the end, it may become more expensive to pay for outsourced services than to hire a full-time individual. 

3. Well-Managed Outsourcing Service

The link with a 3rd-party that performs outsourcing jobs needs to be managed. It embraces signing and negotiating contracts that require time, the participation of the company’s legal counsel, and routine communication with and errors of the outsourced work. 

4. Logistical & Communication Issues

Appending 3rd-party service providers to business operations can give birth to new logistic and communication issues, especially if the two firms follow strict business practices, project management styles, or company cultures. It can be challenging to locate the problems in the starting stages with no direct perspective, and they may be tougher to resolve than the internal issues.

5. Structural Instability

There’s no surety that the outsourcing firm offering service wouldn’t go out of business. 

Types Of Outsourcing

Some special business functions are specifically best suitable for outsourcing. These are a few most popular outsourcing categories:

1. Information Technology Outsourcing (ITO)

Some brands prefer using an external provider for IT services, like app development, software development, technical support, or telecommunications. 

2. Legal Process Outsourcing (LPO)

Still, some companies don’t have lawyers as their staff, but they will need legal services at some point. Some brands prefer outsourcing legal services to 3rd-party lawyers, who can handle critical legal tasks. 

3. Human Resource Outsourcing (HRO)

We can outsource HR functions, like payroll, policy manual updates, background checks, staffing, and administration benefits to human resource professionals. 

4. Knowledge Process Outsourcing (KPO)

Such services point to outsourcing core business processes, like data entry, bookkeeping, conceptual property research, marketing research, or content creation.

5. Engineering process outsourcing (EPO)

It includes allocating specific engineering functions and some tasks to an outside professional. For instance, some automotive brands outsource product development to enhance quality and access new markets.

6. Recruitment process outsourcing (RPO)

Various brands hire 3rd-party organizations to emerge with new talent. The recruiters recognize, magnetize, screen, shortlist, and interview suitable candidates. 

Conclusion

While wrapping up, we expect that this post will prove to be helpful and valuable for you as we have tried to put forward almost every aspect relevant to outsourcing. If you face any issue regarding outsourcing and need our help, we will be more than happy to serve you the best. 

We would like to let you know that if performed well, outsourcing will assist your business to grow, maintaining high quality. So, understand your business needs first, then move ahead with a full-proof business plan.