What is outsourcing?

5 min read

Outsourcing is a method of cooperation where the parties enter into an agreement describing the list and cost of work. Most often, individual entrepreneurs and companies transfer accounting, maintenance, recruitment, development and maintenance of advertising campaigns to other organizations.

In what cases it is necessary to switch to outsourcing?

The performance of certain functions is transferred to a third-party organization in cases where the company does not have the necessary specialist for a specific task, or hiring such an employee will cost the company too much. If there is a need for some functions that need to be performed one-time or occasionally, then it is easier and cheaper to transfer them to a third-party executor – LLC, freelances or private specialist.

Types of outsourcing

One of the advantages of outsourcing is the ability to transfer any (non-core or core) processes to an external contractor. Depending on the delegated tasks, there are several types of outsourcing.

  • Production (industrial)
  • Outsourcing of bank and tax accounting
  • Legal services
  • IT Outsourcing

IT outsourcing includes various activities related to the setup, maintenance and repair of equipment, as well as the creation, implementation and maintenance of information systems or software in enterprises of various fields of activity. You can transfer to the outsourcer the whole complex of works or separate processes (hosting, programming, technical support, testing, etc.).

  • Recruitment and personnel management
  • Labor Protection Outsourcing
  • Transport (logistic)
  • Outsourcing FEA

Pros and con of outsourcing

The meaning of cooperation with third-party executives comes down to concentrating on the main business processes as much as possible, without diverting labor and other resources to performing supporting tasks. Transferring functions to an outsourcer has its advantages and disadvantages.

Benefits:

  • saving money (on wages, insurance premiums and vacation pays, working place organization);
  • work performance at a higher professional level.
  • the ability to focus resources on the core processes of the company, increasing its competitiveness and the quality of goods (works, services).

When market and consumer preferences are constantly, in most cases it will be much faster to find the appropriate contractor than to restructure your own production facilities or introduce new technologies.

Disadvantages:

  • the risk of loss of confidential information, which will reduce the competitiveness of the company;
  • the possibility of receiving low quality services;
  • reducing the efficiency of obtaining information for managing the organization;

Transferring too many functions to outsourcing can lead to a decrease in the effectiveness of certain types of activities that have brought success to the company in the market. Moreover, collaboration with many outsourcers can lead to increased costs.

The cost of outsourcing

The cost of the services of the outsourcing company depends on the type, volume and complexity of the work performed, the long-term contract. When comparing in absolute terms, the cost of executing processes by an outsourcer is higher than that of a full-time employee, but in reality, there are significant savings. When concluding a contract with a contractor, the customer chooses one of the payment types: payment for the result, payment by the hour specified in the agreement, or payment for the actual time worked.

Most common mistakes

Even simple outsourcing can be associated with a number of errors that will lead to financial losses.

Wrong estimated budget

The main motive for the transfer of work to an outside contractor is to reduce costs, but often the price is very high or the quality of performance is too low. To avoid this error, it is necessary to analyze the TOP outsourcing companies in order to choose the optimal ratio of price and quality.

Before you give your business processes to third-party executors, you need to carefully calculate the profitability of each of them. Delegate to outsourcers only those works that are unprofitable to perform in your company.

Wrong choice of outsourcing company

When selecting an outsourcing company, you should pay attention to its reputation, reviews of regular customers, the period of work in the market, the level of qualifications of specialists who will perform the work, guarantees and other nuances. It is not recommended to choose new companies with too low prices for services - because the work of a highly qualified specialist can not be cheap.

Incorrect contract or lack of contract for outsourcing

The contract between the parties must contain all the nuances - the result of the work, deadlines and time of execution, the cost of the service, and the responsibility of the parties for non-fulfillment of their obligations. Carefully read the contract and in any case do not begin to work only after a verbal agreement!

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