The forms and variants of outsourcing
- Internal company outsourcing : This means the outsourcing of functions or processes to other organizational units, which, however, belong to the same company or the same group of companies. Although these are mostly legally independent companies, the influence of the commissioning company remains largely due to their affiliation with the company as a whole.
- Business Process Outsourcing : This is the outsourcing of complete business processes, such as the processing of returns.
- Knowledge Process Outsourcing : This variant involves the outsourcing of very complex tasks for which a high degree of specialization is required and which must be carried out by specially trained employees of a corresponding service provider. An example could be writing SEO texts on the Internet.
- Selective Outsourcing : This is a hybrid form of business process outsourcing and outtasking. Because here the company outsources special sub-areas – more precisely, more than individual tasks are assigned, but still less than entire processes.
- Out-Servicing : Out-Servicing is a special form of outsourcing in which only the customer service of a company is passed on to an external service provider.
- Online outsourcing : This type of outsourcing takes place over the Internet, so to speak. The areas affected are usually IT or marketing. What is special about online outsourcing is that the external service providers use the Internet to perform their work.
Note : In the area of financial institutions, there are guidelines for EBA outsourcing published by the European Banking Authority.
What is outtasking?
With outtasking, a company hands over very specific and limited areas of responsibility to an external service company. The higher-level business process, on the other hand, remains the responsibility of the outsourcing company. In contrast to IT outsourcing, in which the great dependency of the commissioning company on the external service provider is criticized, this dependency is much lower with outtasking, since many tasks are still carried out in-house.
What is the difference between outsourcing and offshoring
The term offshoring describes the relocation of tasks abroad. So there is a geographic shift taking place. With classic outsourcing, on the other hand, there is an organizational shift . Although there does not necessarily have to be a connection between these two types of restructuring, offshoring measures very often also include outsourcing. As with outsourcing, the top priority when outsourcing to other countries is also to save costs. Offshoring achieves such a cost reduction by relocating to countries that have a significantly lower wage level than the company’s home country.
According to bestitude, there are some risks associated with offshoring, which can be both strategic and operational in nature. Due to the geographical distance between the company and the external service provider, difficulties can arise in various areas:
- Differences of a cultural or religious nature
- Time difference (keyword different trading hours)
The company can also suffer disadvantages from the fact that the geographical distance means that it loses part of the flexibility it actually needs in order to react to changes that are relevant to the market. Processes are often influenced to a not insignificant extent by location-dependent factors, which can then lead to delayed reactions due to the distance. With offshoring, activities are carried out by distant, often unknown people, which can lead to a change in the working atmosphere.
A possible process model for outsourcing
How to approach an outsourcing project certainly differs from company to company. Nevertheless, there are tried and tested procedures (so-called best practices) that can be used.
Possible course of action for an outsourcing decision
- At the beginning there is a detailed analysis of the current situation by a put together team.
- This team then determines the process.
- This is followed by an assessment of the potential.
- Preparations are being made.
- The kick-off meeting takes place.
- The participants in the meeting develop a solution model.
- The alternative possible solutions are compared.
- The project team is given the necessary decision-making powers.
- A cost calculation is created.
- The team evaluates the service provider and selects a suitable one.
- This is followed by the creation and evaluation of the tender.
- The specification of requirements and specifications are coordinated . There are also requirement specification templates and requirement specification templates for this purpose .
- The implementation phase then begins.
- This is where the specific schedule for the final implementation of the outsourcing comes into play.
- The project management will continue as well as an ongoing quality control.
Examples of outsourcing
- Call center outsourcing : Here the customer service is then subject to a specialized call center, which in practice often takes on specific call capacities for a fixed price.
- Online Marketing Outsourcing : Here a company outsources its online advertising measures, such as the maintenance of social media channels, to external service providers.
- If it is too expensive for a fashion company to manufacture its clothing in Germany, it often carries out the production in Asia and then ships the finished clothing to Germany by sea freight.
- IT outsourcing : This is about the outsourcing of IT hosting and processing such as IT service management.
You should keep this in mind when outsourcing abroad
If you are responsible for outsourcing measures abroad in your company, for example for the outsourcing of logistics, accounting or personnel, then you need to keep various aspects in mind. First of all, it is necessary to find a suitable provider abroad who is able to meet the requirements of your company.
In addition, the relevant service provider must have the necessary resources to do the work required by your company. When it comes to the outsourcing of personnel, you, as the person responsible, are dependent on finding employees who are willing to go to a distant, foreign country for the company. When selecting suitable candidates, it is an advantage if they speak the relevant national language or at least speak fluent English.
The most popular outsourcing countries
There are three popular outsourcing countries in Asia: Malaysia, China and India. But worthwhile outsourcing projects can also be carried out in neighboring European regions. For example, a large infrastructure has been built in Ireland that industry giants like Apple are willing to use. In Romania, on the other hand, simple jobs that are not very complex are in good hands.
The pros and cons of outsourcing
Let’s get to the pros and cons of outsourcing corporate functions. In the following overview we have tried to summarize the most important points.
The benefits of outsourcing
- The company can concentrate on its core business .
- Cost savings compared to providing the service in-house.
- Tax advantages through outsourcing: Costs of outsourcing reduce the taxable profit.
- Qualitative advantages – Experienced subcontractors may do a better job than their own team.
- Strategic partnerships may open up new areas of business . Keyword: vertical integration.
The disadvantages of outsourcing
The main disadvantage is the associated dependency on the service provider in the outsourcing process. Should the service provider encounter economic or qualitative difficulties, this can mean follow-up costs for your own company. In addition, some business functions cannot easily be reintegrated into areas of your own company. Companies that have completely outsourced their SAP development, for example, usually deeply regret this. Ultimately, the know-how about your own business processes is “gone”. In order to reverse this process, a powerful team must first be built up again. This is expensive and time consuming.
There are also the following disadvantages when outsourcing:
- There is a loss of know-how due to the outsourcing of functions.
- Possible problems in the working atmosphere. If the employees see the service provider as a kind of competition or see their own workplace threatened by outsourcing, then resistance is to be expected.
- Data protection – because depending on the outsourced function, the service provider receives an insight into the sensitive company data.
Before resorting to outsourcing, the decision should always be carefully analyzed and, above all, be made with a view to the future. Functions that set one company apart from another should never be outsourced.
The advantages and disadvantages of outsourcing can most easily be shown in a tabular list.
|Increase in the need for communication
|Increase in quality
|Loss of control for the company
|Time expenditure decreases
|Increase in the dependency on the service provider
|Increase in effectiveness by concentrating on core areas
|Less training for company employees
|Increase in flexibility
|Declining number of employees (due to layoffs)
|Worse working atmosphere through competitive thinking
|Growth is accelerated
|Possible losses in data protection (due to insights from the external service provider)