Outsourcing: business impact
According to Investopedia, outsourcing is a practice used by different companies to reduce costs by transferring portions of work to outside suppliers rather than completing it internally.
It is usually an effective cost-saving strategy when used properly. Because sometimes it’s more affordable to purchase a good from companies with than it is to produce the good internally.
Business process outsourcing (BPO)
It is an effective method of subcontracting various business-related operations to a third party.
When business process outsourcing began, it applied chiefly to manufacturing entities, such as soft drink manufacturers; however, it is now applicable to the outsourcing of many products and services.
knowledge process outsourcing (KPO)
It is a form of outsourcing in which knowledge and information related work is carried out by workers in a different company or by a subsidiary of the same organization.
This subsidiary may be in the same country or (most commonly) in an offshore location to save costs or other resources.
Companies resort to knowledge process outsourcing when they have a shortage of skilled professionals. Have the opportunity to hire skilled workers earning lower wages in another location for a lower overall cost.
As anything in the world of business, the most important thing is always the same: the people.
How does the outsourcing take its part on the people subject?
Many businesses outsource functions of human resources, such as payroll and health insurance. Saves enormous amounts of time, effort, and energy in the process.
HR is often one of the noncore functions of a firm, and other companies may have experts to help with this aspect of human capital.
But there is much more: the Recruitment Process Outsourcing (RPO)
It is a form of business process outsourcing. Where an employer transfers all or part of its recruitment processes to an external service provider.
An RPO provider can supply its own or may assume the company’s staff, technology, methodologies, and reporting.
RPO differs greatly from providers such as staffing companies and contingent/retained search providers in that it assumes ownership of the design and management of the recruitment process and the responsibility of results.
In addition to cost savings, a company can employ an outsourcing strategy to focus on core aspects of a business. Also, the noncore practices can improve streamlining, efficiency and productivity because another entity performs these smaller tasks better than the firm itself.
This strategy may also lead to faster turnaround times, increased competitiveness within an industry and the cutting of overall operational costs.
Businesses can reduce labor costs significantly by outsourcing certain tasks, while companies may have access to technology without investing large amounts obtaining the technologic property.
Until now, outsourcing looks marvelous but is it a bed of roses?
It may depend on the degree of outsourced services and the terms of the contracts.
Signing contracts with other companies may take time and extra effort from a firm’s legal team. Besides, security threats occur if another party has access to a company’s confidential information.
Then the party suffers a data breach, this is a specially sensitive spot when the outsource is with an independent accounting firm. As it may be cheaper than retaining an in-house accountant. But may be more expensive than have the work well done in-house.
Lack of communication
Also, a lack of communication between the company and the outsourced provider may occur, which could delay the completion of projects.
This brings the other side: insourcing means assigning a project to a person or department within the company instead of hiring an outside person or company to do the work.
Nevertheless, as Larry Elder says. Outsourcing and globalization of manufacturing allow companies to reduce costs, benefits consumers with lower cost goods and services. Causes economic expansion that reduces unemployment. Increases productivity and job creation, that is why it is often seen in a very positive way.
Often part of a company’s strategy
The process of procurement is often part of a company’s strategy. Because the ability to purchase certain materials will determine if operations will continue.
This includes preparation and processing of a demand as well as the end receipt and approval of payment.
According to ICG Commerce, genuine outsourcing differs from other procurement services based on the level and degree of on-going accountability placed upon the services provider.
Procurement outsourcing typically involves long-term (36 – 60 months) day-to-day management of a group of procurement sub-processes (e.g., requisitioning, supplier management). For multiple category groups (such as Administrative Supplies and Equipment, industrial Supplies and Equipment, Telecom, IT Hardware, Travel, etc).
Procurement outsourcing offers companies the ability to focus on their core competencies and gain access to leading external capabilities in non-core activities.
Ultimately improving the overall level of procurement performance and results across all categories and activities without making large infrastructure investments.
Most of the time, companies look to outsource what they either cannot manage well with their given resources and technology (thus reallocating to more core activities) or cannot manage at all.
Technology has made outsourcing a more accessible tool for small businesses. For some small firms, it has made a powerful impact on their growth, productivity and bottom lines.
It is often said that for every company, the right time to outsource is different. Some businesses have in-house staff to handle daily activities. But may need outside help to undertake new projects that don’t warrant another full-time employee.
When the founder and the current employees are unable to manage the day-to-day business of the company and build the business satisfactorily. It may be time to consider outsourcing.
It is very important delimiting which tasks can be performed in-house before resorting to an outsourcing service. Taking a hard look at the business and employees determining all the strengths and values.
Also before handing over the reins, it is very important being sure of work with the right firm. Finding capable, reliable outsource providers.
By a thought and complete selection process, as Stephen Covey said.
“Outsourcing is inevitable, and I don’t think it’s necessarily treating people like things.”