Out­sourcing

Out­sourcing is the practice of passing in­di­vidu­al tasks, subareas, or business processes over to a third-party and thereby receiving the results from outside of your own company. Services that your company was re­spons­ible for ful­filling will now be provided by a spe­cial­ised service provider. These tasks are often a business’s secondary functions: tasks that must be fulfilled in order for a company to focus on its central activity.

With out­sourcing, one or more tasks or processes are usually given to an external partner. Under certain cir­cum­stances, however, some tasks be performed in­tern­ally (in-house out­sourcing). For example, if you have given a task to a different area of your company, or to a de­part­ment which spe­cial­ises in it, this is commonly known as internal out­sourcing. In contrast, a task given in its entirety to an outside company is known as external out­sourcing. The external company may be based re­gion­ally or may be a foreign con­tract­or. The focus is on potential cost savings.

In addition to the hoped-for cost savings of out­sourcing, there are other reasons for handing over certain tasks:

• Increased ef­fi­ciency: Companies can con­cen­trate on their core com­pet­en­cies and work more ef­fi­ciently.
• Optimal scalab­il­ity: Out­sourcing increases the avail­ab­il­ity of labour. As a result, maximum output can be achieved and pro­duc­tion guar­an­teed – even in the event of seasonal or non-op­er­a­tion­al capacity fluc­tu­ations.
• Quicker response: You are more re­spons­ive to change because you can pass these tasks on to spe­cial­ised third-party companies.
• Quality im­prove­ment: Out­sourcing often brings quality im­prove­ments. For instance, in man­u­fac­tur­ing a good factory or workshop can improve the quality of products.
• Save costs: External companies have a high degree of spe­cial­isa­tion with regard to their services. They can work much more cost-ef­fi­ciently and therefore offer dis­coun­ted rates.
• Lack of know-how: New processes and op­er­a­tions in companies are often necessary, but the employees often lack the know-how and im­ple­ment­a­tion skills required. Out­sourcing is an al­tern­at­ive to hiring skilled workers for this.

There are different dis­tin­guished forms of out­sourcing:

• Business process out­sourcing: In business process out­sourcing, entire company processes are out­sourced. An example of this: you can have your em­ploy­ees' payroll created by an external service provider.
• Knowledge process out­sourcing: In this type of out­sourcing, complex tasks are out­sourced to a third-party company. An example of this can be the pre­par­a­tion of search engine optimised texts for your website. The re­spect­ive company usually has trained experts with a high degree of spe­cial­isa­tion.
• Out-tasking: In this case, only in­di­vidu­ally-defined tasks are handed over to another company. Often it is because they are time-consuming and ad­min­is­trat­ive processes, such as the archiving of e-mails or data backup. However, the re­spons­ib­il­ity for this remains with the company, as the whole business area continues to be managed in­de­pend­ently.
• Selective out­sourcing: Selective out­sourcing mixes business process out­sourcing and out-tasking. Distinct sub-areas are out­sourced which are more extensive than in­di­vidu­al tasks, but nev­er­the­less do not cor­res­pond to a complete process.

Out­sourcing strategies are used, for example, in the customer service, ac­count­ing, tax con­sult­ing, IT, and marketing de­part­ments.

Examples of possible out­sourcing strategies:

• Customer service: A company re­lin­quishes the task of customer service to a spe­cial­ised company. Often call centers take over a certain call capacity for a fixed price.
• Marketing: A company out­sources the support of social media channels to an external service provider (e.g. an agency).
• Man­u­fac­tur­ing of products: For many fashion companies it is too expensive to produce clothes in the UK. Therefore, they often opt for pro­duc­tion in Asia. After completed pro­duc­tion, the clothing is then shipped to the UnitedK­ing­dom.

These are just a few typical examples of out­sourcing. In practice, a company today can outsource every step of its op­er­a­tions, whether in man­u­fac­tur­ing or the provision of services, to an external con­tract­or. Thanks to the networked world, it no longer matters whether the foreign company is located in the neigh­bour­ing village or on the other side of the world.

Do you think that out­sourcing is the best strategy for your business, but you don’t know how best to proceed? Simply put, there is no single right approach to out­sourcing a project. Just as companies are different to one another, so too are out­sourcing strategies. However, the following best practice method has already proven itself in many situ­ations:

1. Analyse the current state: Analyse the actual state of a task, a sub-region or a business process. From the analysis, you can determine the best further course of action and estimate the potential of an out­sourcing strategy.
2. Prepare: Organise a kick-off meeting with all of your company's stake­hold­ers to get the most out of your out­sourcing project. In the meeting, you can lay the found­a­tion for future joint work. It should highlight and discuss the benefits of the project, the content and timing of the project, and the next steps.
3. Select a service provider: Compare potential service providers with each other. For the selection and in­ter­ac­tion with potential service providers you need a product re­quire­ment and a scope statement. In product re­quire­ment documents you record all basic re­quire­ments as well as the rough project concept. However, in scope state­ments you note the cor­res­pond­ing solutions and detailed re­quire­ments. On this basis, service providers can come up with new solutions or develop existing ones. In addition, you avoid possible mis­un­der­stand­ings.
4. Stick to your im­ple­ment­a­tion timeline: Once the contract has been concluded, im­ple­ment­a­tion can begin. Important: agree on a concrete timetable for im­ple­ment­a­tion in the contract. As part of the project man­age­ment, regularly check to see whether con­trac­tu­ally agreed mile­stones are reached.

Out­sourcing is a complex process, which is why there can be mistakes in its im­ple­ment­a­tion. Even com­pre­hens­ive planning cannot guarantee a smooth process. Here we look at some of the most common mistakes so that you avoid them:

• Wrong out­sourcing partner: Companies can choose between different out­sourcing partners depending on the subject: spe­cial­ised man­u­fac­tur­ers, agencies or self-employed. However, a sat­is­fact­ory result requires a careful selection of the business partner.
• Arbitrary out­sourcing: Ar­bit­rar­ily out­sourcing tasks may save you work, but rarely makes sense. Not only from an economic per­spect­ive, it is best to first analyse the different fields and activ­it­ies of your own company in detail and then make a decision.
• In­ac­cur­ate agree­ments: Unclear ar­range­ments will often mean you as a business are not satisfied with the results. Therefore, it is important to specify in advance what exactly is being out­sourced and how or to what extent the specified criteria will be monitored.
• Bad contracts: An out­sourcing contract should document out­sourced tasks and mutual ob­lig­a­tions. Unclear questions can lead to mis­un­der­stand­ings.

Do you want to outsource part of your work processes and hire a company or service provider abroad? Be sure to consider these three factors:

• Time dif­fer­ence: Thanks to di­git­isa­tion, you can col­lab­or­ate with freel­an­cers from around the world. But in the case of an urgent as­sign­ment or spon­tan­eous meeting, the time dif­fer­ence can be a dif­fi­culty.
• Language barriers: Fluent English is one of the most important pre­requis­ites for out­sourcing abroad.
• Working method: Tech­niques and ap­proaches are not the same in all companies. It is likely that a company on the other side of the world might address a problem dif­fer­ently to the way you are used to.

The decision to give certain functions to an outside service provider should never be taken lightly. Once the tasks have been out­sourced, re­in­teg­rat­ing them back into a company can be anything but easy. You should always first check that the benefits outweigh the dis­ad­vant­ages for your company before opting for out­sourcing.

Many companies resort to out­sourcing strategies in order to purchase services cost-ef­fect­ively and to be able to focus more on their own com­pet­en­cies. Modern pro­duc­tion and logistics concepts are necessary for such measures to achieve the hoped-for success. The just-in-time pro­duc­tion strategy is an example of such a concept. Materials are produced or delivered only when they are actually needed. In this way, a company can save on storage costs and only has to pay for the material costs during pro­duc­tion.

In the course of glob­al­isa­tion, through global logistics concepts and the constant de­vel­op­ment of the Internet, it is easier than ever for companies to hand over a more or less large part of their process to other companies. Those who use out­sourcing properly can speed up workflows and improve their products or services, so it is possible to counter the growing global com­pet­i­tion.

Please note the legal dis­claim­er relating to this article.