What is outsourcing and how can it help your business grow?
In recent years, the concept of outsourcing has become very fashionable in Poland. Of course, this is due to the growing popularity of this business phenomenon. If you don't know what outsourcing is yet, or if you have doubts about introducing it in your company, read our article.
Outsourcing - the origin of the term
The genesis of the term outsourcing consists of three English words:
outside + resource + using
In translation into Polish:
external + resources + use
In terms of translation, outsourcing means using external resources, and perhaps better - using external resources.
What is outsourcing?
Outsourcing, therefore, means delegating the performance of specific services, tasks and projects to external companies. A company outsourcing services to another entity indicates the expected results, but does not issue detailed recommendations on how these results should be achieved.
The beginnings of outsourcing
The official beginnings of outsourcing are related to the automotive industry.
The first known promoter of outsourcing is Henry Ford, who in 1923 stated: If there is something we cannot do more efficiently, cheaper and better than our competitors, it makes no sense for us to do it and we should hire someone to do the job better than us.
However, the term itself was used in 1979, when representatives of the British automotive industry commissioned industrial projects to Germany.
Initially, outsourcing mainly concerned the production sphere, allowing for the resignation from the production of semi-finished products necessary for the production of finished products, in favor of obtaining them from external suppliers. Over the years, this phenomenon began to encompass more and more areas of enterprise operation, currently covering most of the areas of activity.
What services can outsourcing cover?
Currently, outsourcing covers a wide variety of services that are worth and can be outsourced to external contractors. The following services are currently outsourced:
HR and payroll services,
marketing and advertising,
controlling and management information,
fixed assets management,
internal audit of the company,
protection of property,
Types of outsourcing
Full and selective outsourcing
We do not always have to decide to fully transfer a given area to an external company - instead of the so-called full outsourcing, we can choose selective outsourcing. In the case of selective outsourcing - depending on our resources, knowledge and experience - we can choose what elements from a given department will be performed by an external company. This solution allows for a more flexible adaptation of services to the situation of a specific company, its capabilities and current needs.
Capital and contract outsourcing
Usually, outsourcing concerns an external company, completely separate from the company that wants to outsource a specific service. However, in practice, there are solutions based on the separation of a company from a given business organization that specializes in carrying out specific tasks for the mother company. In such a case, both entities are related by capital. As the name suggests, this type of outsourcing is called equity.
At the other extreme of this division is contract outsourcing, which is completely separate from the organization that wants to outsource services. In such a case, the outsourcing company is separate both in terms of capital and law. It simply has nothing to do (apart from an outsourcing contract, of course) with the client.
Division according to goals
Outsourcing can also be divided according to the goals set:
remedial outsourcing - it is used to get the company out of a difficult situation, to remedy negligence.
adjustment outsourcing - aims to help the company adapt to new market realities,
development outsourcing - these are activities aimed at improving the functioning of the company in the future.
Advantages of outsourcing
The main advantage of outsourcing is a significant and noticeable cost reduction for the company, provided, of course, the company selected for the outsourcing service will have costs not greater than those that would have to be borne by our department. Savings also result from the reduction of expenditure on the creation and maintenance of employee space and the technical base, reducing the number of employees, as well as relieving other departments of the company.
However, the economic advantage is not the only one that speaks in favor of implementing outsourcing.
Focus on strategic goals
If a company outsources its side activities to other entities, it can devote its resources to the strategic goals of the company to a much greater extent. He can concentrate his efforts and efforts on developing the core of the business (i.e. what he knows best), instead of being distracted by administrative and organizational tasks.
By allocating the greater part of the funds to the main business goals, it ensures faster development of the company, increase in market value and greater competitiveness.
Easy access to expert knowledge
Thanks to the cooperation with an external company specializing in a specific plot (e.g. accounting, IT, marketing, etc.), the company gains access to specialist knowledge and experience of experts without the need to create additional jobs.
Increase in the quality of outsourced services
It must be remembered that the outsourcing company has a whole host of specialists who are at our disposal. Thanks to the transfer of specific areas of activity to experts, the quality of the services provided increases, which results from their experience and narrow specialization in specific areas.
Disadvantages of outsourcing
Outsourcing also carries certain risks.
Excessive emphasis on savings
One of the main problems may be the desire to cut costs excessively. If we are looking for a company to which we want to outsource services, guided primarily by the price, or we negotiate the rate too much, we risk that it will work with us on the verge of profitability. As a result, the quality of services provided by a subcontractor working at cost may be significantly reduced.
Loss of control
By delegating a specific scope of work to the outside world, we lose control over it. The outsourcing company is tasked with achieving a specific goal and is accountable for this, but the way of implementation is on its side. We have no control over who and how carries out these tasks.
Loss of identity
In the company's pursuit of cost optimization and outsourcing of everything that can be outsourced, it may happen that we outsource activities that are strategic to our business. We then get rid of direct control over them, and besides - due to the fact that such activities are the "core" of our business - it is associated with the possibility of losing the company's identity.
Confidential data leak
When carrying out commissioned tasks, an external company often obtains access to sensitive and confidential information that may fall into the wrong hands of third parties.
How to choose an outsourcing company?
When delegating certain activities outside the company, it is very important to check the reliability and professionalism of the company, to which we will delegate specific tasks to perform. It is worth checking her experience in handling such cases, references issued by clients, and one should also pay attention to whether she specializes in conducting such works.
However, the success of cooperation also depends largely on us.
It is important to define our goals and requirements for the partner at the very beginning of the arrangements for the implementation of the assigned tasks. It is also worth preparing the company's employees for the upcoming changes and ensuring that their future contacts with the outsourcing company run smoothly.
In the initial period of cooperation with a new enterprise, joint activities should be carefully monitored and any doubts should be resolved quickly and efficiently.
Outsourcing - summary
We hope that this article clearly answers the question of what outsourcing is and why it is worth implementing this enterprise management strategy in your own company.
When deciding to cooperate on the basis of outsourcing, you need to be aware of its positive and negative sides. A lot of emphasis should be placed on finding a suitable, reliable company, but it is also worth preparing the company internally for changes.
The decision on the scope of activities transferred to the outsourcing company, preceded by an analysis of the current situation and a detailed plan, will certainly help in the dynamic development of the company, generating additional profits and increasing its competitiveness on the market.