What do companies outsource their work to?
Outsourcing: definition, advantages and disadvantages
When companies grow and new areas of responsibility arise, executives have two options: Either they hire appropriate staff or they outsource the work. The latter option is called outsourcing in technical jargon and is enjoying increasing popularity in the age of digitization. For companies, outsourcing primarily means one thing: saving costs and time. In this article we would like to bring you closer to the advantages of outsourcing personnel and tasks, what downsides there are, what significance outsourcing has for freelancers and even more.
1. Definition: what is outsourcing?
2. Various forms of outsourcing
3. A boon for freelancers
4. What are the advantages and disadvantages of outsourcing?
5. Typical areas of the company that are outsourced
6. Outsourcing Mistakes: What To Avoid
7. Outsourcing abroad: you need to know that
Definition: what is outsourcing?
Basically, the corporate strategy outsourcing is explained very quickly. This involves the outsourcing of tasks and entire projects that were previously implemented within the company. The now externally commissioned company or the individual is an expert in the outsourced area and can offer a correspondingly high-quality work.
Info: The term outsourcing is made up of three word components: outside, rightsource and using - in other words: the use of external resources.
It is important that only secondary tasks are outsourced in the course of outsourcing. So-called Secondary functions are required in order to be able to carry out the main business of a company or to keep it running. Everything that belongs to the classic secondary functions will be examined in more detail below in the text.
Outsourcing is not only suitable for large corporations, but also for SMEs. Furthermore, sole proprietorships, freelancers and freelancers can take advantage of the outsourcing of areas of responsibility in order to be able to concentrate more on their core business.
Different forms of outsourcing
We now know what outsourcing means in general. Let's go one step further and in depth. The corporate strategy can be divided into different forms.
- In-house outsourcing: You might be taken aback reading these two words. Didn't we write earlier that outsourcing means outsourcing tasks to external companies? Exactly. In-house outsourcing means that an area of responsibility is transferred to a subsidiary, for example. There is also the option of setting up a new company to outsource the field. It is clear that such a practice takes place primarily in large companies.
- Business process outsourcing: Translated into German, this form means something like business process outsourcing. This means that an entire line of business is passed on to third parties. Important: Not only the tasks, but also the control is outsourced.
- Knowledge process outsourcing: This form of outsourcing is particularly complicated when companies are suddenly faced with complex tasks that have nothing to do with their core business. Areas with an extremely high level of complexity are then passed on to appropriate specialists. If these are clearly defined areas of responsibility, outsourcing is also called Out-tasking designated.
- Offshore outsourcing: Lower hourly rates with the same (and sometimes even better) performance ensure that many companies relocate their tasks abroad. This form of outsourcing is called offshore outsourcing, or offshoring for short.
- Out-servicing: This very special form of outsourcing relates exclusively to a company's customer service. This can be taken over by call centers, for example.
A boon for freelancers
Outsourcing is a process from which both sides benefit at best: Company number 1 can hand over tasks to a competent team of experts and save time and money, and company number 2 receives a (well-paid) contract. But not only large agencies, but also sole proprietorships and freelancers - so-called freelancers - benefit from the development of outsourcing. This is because they get the majority of their jobs and thus also their income.
Reading tip: What exactly a freelancer is, what their daily work looks like and much more information on this topic can be read in the article Guide: Working as a freelancer - you need to know everything.
Another advantage for freelancers is that, thanks to the advancing digitization, you can now work anywhere in the world and offer yourself as an outsourcing service provider. However, as nice as that sounds, this advantage also has a disadvantage. Digitization is also driving global competition. We already addressed the problem when it came to offshore outsourcing: The international competition is pushing prices down and ensuring that freelancers sometimes work for really low wages.
Outsourcing brings advantages and disadvantages
As you can see, not all that glitters is gold. Even if outsourcing appears to be a win-win situation for everyone involved at first glance, the corporate strategy must always be treated with caution. In the following you will find a number of advantages and disadvantages that will help you to classify and assess outsourcing even better.
The overview shows that the advantages and disadvantages of outsourcing are in balance. Nevertheless, the majority of the outsourcing strategy is perceived positively. That's because the benefits are more obvious. The disadvantages, on the other hand, usually only become clear if you think about outsourcing for a long time and adopt different perspectives.
Company areas that are outsourced
Outsourcing is now used in almost all areas of a company. The principle can be applied in a variety of ways and is not least because of this so popular. Despite the general applicability, there are certain areas that are particularly typical for outsourcing. The following list reveals which ones are:
- Customer service
- Information technology
- Marketing (in all its forms, including, for example, social media and content creation)
- Graphic design / media creation
In general, everything can be outsourced that costs too much time and can also be done by external people.
Outsourcing Mistakes: What To Avoid
Anyone who opts for the option of outsourcing should always remember that there is also plenty of potential for errors. The main thing here is that preparation is half (if not all) of the battle. Read here about the mistakes that can be made when outsourcing:
- Tasks and areas are not clearly defined: What exactly should be outsourced? What is the job that remains in-house? Successful outsourcing thrives on being clearly defined and separated from other areas. It is also important to formulate a goal and not lose sight of it.
- Risks are not sufficiently illuminated in advance: It happens again and again that companies are blinded by the advantages of outsourcing and blindly conclude outsourcing contracts. What they completely ignore are the risks and disadvantages that come with it.
- Outsourcing is unnecessary: We have already mentioned it above - outsourcing is only worthwhile if at least 20% of the costs can be saved. Unfortunately, the mistake is made again and again of not checking this in detail. The result: Outsourcing is unnecessary (because it does not save enough costs) and becomes an additional burden.
- Agreements are not precise enough: Nothing is more annoying than discovering that the external service provider is not working satisfactorily. However, this is not always due to this, but can also be a mistake on the part of the client. Problems are inevitable when agreements are inaccurate, incorrect or even non-existent.
- The wrong service provider is selected: Sometimes even the best agreement doesn't help. If the wrong service provider is selected - who cannot convince either on a professional or human level - then promising outsourcing is difficult. Therefore: Test the freelancer or agency first before signing longer-term contracts.
- Contracts are insufficiently drawn up: What is taken over by the service provider and what is not? What are his rights and obligations? What happens in the event of a breach of contract? Contracts between the individual parties should always be drawn up with the greatest possible care. Make sure that the agreements are flexible and can adapt to developments in the labor market.
- The own employees are neglected: As practical as it can be to employ external employees - as a manager, you should never neglect internal employees. If they get the feeling that they are “second choice employees”, motivation and job satisfaction drop rapidly.
Outsourcing abroad: you need to know that
Offshore outsourcing is very popular. Skilled workers abroad are often cheaper than in Germany and still deliver excellent work. Offshoring has long become a habit, especially in the IT sector. Anyone who is interested in this and wants to use the services of foreign experts should, however, be aware of the following points.
- Linguistic and cultural barriers: There is no question that if you are thinking about offshoring, you have to be able to speak English - otherwise communication is not possible. However, your broken and rusty school English will not help you any further. Another problem is in some cases large cultural differences, which sometimes have to be classified as irreconcilable.
- Time shift: A freelancer lives in Thailand and works for a German company as an outsource service provider - thanks to digitization, that's no problem. But what if you have a Skype conference or an urgent question comes up? In situations like these, the time difference can become a pitfall.
- Mentality and work ethic: Germans are known worldwide for their hard work and thoroughness. It is not for nothing that “made in Germany” is an internationally recognized seal of quality. However, it is also no secret that this mentality and work ethic is not present everywhere in the world. Offshore outsourcing always means exposing yourself to this risk component.
We hope that you are now well informed about outsourcing. If you still have unanswered questions or want to make a comment, please feel free to write a comment and contact us. The exchange with our readers is very important to us.
Photo credit: Teguh Jati Prasetyo / Shutterstock.com
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