What is outsourcing?

So, you wonder what is outsourcing? It is a word that we have often encountered in the media in recent years, but it is still a centuries-old strategy. But what does it actually mean? Simply put, outsourcing is the acquisition of goods and services from a foreign supplier.

We live in a world where the same amount of work done in one country is not paid as much as in another, which leads to the tendency to keep the costs we have in the future to a minimum. Cost reduction is one of the key reasons why companies choose to outsource. This is a practice most often used when labor costs are too high, when a particular industry or sector lacks manpower for certain jobs or positions, to share risk, speed up a project, or to allow a company to focus on major, fundamental activities. In doing so, companies can “share” any position.

Organizations decide to take this step in order to meet the imperative of today’s business – competitiveness. What do we mean by that? Namely, organizations are abandoning activities in which the competition is better, and with which they are simultaneously connected by a business network. Therefore they keep performing the jobs in which they excel in, and hire someone for the  jobs which they think others will perform better. This allows the organization to focus on fundamental activities, while leaving less important activities to others.

Outourcing can be divided into 3 types:

  • Strategic outsourcing involves the complete transfer of an entire function to the „supplier“, while retaining only the supervision and control of the business process.
  • Tactical or partial outsourcing involves one part of the business process being outsourced.
  • Targeted outsourcing, which is also the most common form of outsourcing, involves hiring of experts who are entrusted with a certain part of the work.

Outsourcing is not just a relief and division of labor, it also carries with it certain risks.

Some of them are:

  • Causing process interruption
  • Underestimating the cost of coordination
  • Reduced contact with the buyer / supplier
  • Loss of internal capabilities and possible growth of third party power
  • Leakage of confidential information
  • Ineffective contracts

Therefore, the key question is, how will we know when outsourcing is appropriate and when it is not?

Before deciding to outsource, we need to think carefully and discuss which jobs can and cannot be included in outsourcing. There are process and project jobs in every company. Process work takes place continuously, repetitively and without change if there is a change in the people who perform them. Also, they take place in a shorter period of time, unlike projects that require a longer period of time. They are unique, they do not repeat in the same form, and largely depend on the people who perform them and the amount of their invested creativity.

Process jobs cover 70% -80% of the total work in the company, so it can be concluded that the performance of business processes, without loss of quality and efficiency, can be left to others while you focus on creative ventures that require time, effort, deliberation and higher risks.

Since 2015, outsourcing has been most commonly used for the following jobs:

Considering popularization and development of outsourcing, one thing is for sure – more and more companies will reach for it and be part of an already global trend. This will allow them to be more engaged in jobs that differentiate them and make them better than the competition, which is ultimately the goal of every company.