What is outsourcing? | Definition and examples - IONOS

Outsourcing: examples of outsourcing tasks · Marketing: A company outsources the support of social media channels to an external service provider ... IONOSStartupguideGrowYourBusinessOutsourcing 09.11.18GrowYourBusiness Outsourcingisthepracticeofpassingindividualtasks,subareas,orbusinessprocessesovertoathird-partyandtherebyreceivingtheresultsfromoutsideofyourowncompany.Servicesthatyourcompanywasresponsibleforfulfillingwillnowbeprovidedbyaspecializedserviceprovider.Thesetasksareoftenabusiness’ssecondaryfunctions:tasksthatmustbefulfilledinorderforacompanytofocusonitscentralactivity.ContentsWhatisoutsourcing?Whatarethereasonsforoutsourcing?DifferentformsofoutsourcingOutsourcing:examplesofoutsourcingtasksTherightapproachMistakestoavoidOutsourcingabroad:whatisimportant?Outsourcing:advantagesanddisadvantagesOutsourcingisgainingimportanceWhatisoutsourcing?Definition:outsourcingTheterm“outsourcing”referstoastrategywherebycorporatetasksandstructuresaregiventoanexternalcontractor.Thesecanbeindividualtasks,specificareas,orentirebusinessprocesses.Withoutsourcing,oneormoretasksorprocessesareusuallygiventoanexternalpartner.Undercertaincircumstances,however,sometasksbeperformedinternally(in-houseoutsourcing).Forexample,ifyouhavegivenatasktoadifferentareaofyourcompany,ortoadepartmentwhichspecializesinit,thisiscommonlyknownasinternaloutsourcing.Incontrast,ataskgiveninitsentiretytoanoutsidecompanyisknownasexternaloutsourcing.Theexternalcompanymaybebasedregionallyormaybeaforeigncontractor.Thefocusisonpotentialcostsavings.Whatarethereasonsforoutsourcing?Inadditiontothehoped-forcostsavingsofoutsourcing,thereareotherreasonsforhandingovercertaintasks:Increasedefficiency:Companiescanconcentrateontheircorecompetenciesandworkmoreefficiently.Optimalscalability:Outsourcingincreasestheavailabilityoflabor.Asaresult,maximumoutputcanbeachievedandproductionguaranteed–evenintheeventofseasonalornon-operationalcapacityfluctuations.Quickerresponse:Youaremoreresponsivetochangebecauseyoucanpassthesetasksontospecializedthird-partycompanies.Qualityimprovement:Outsourcingoftenbringsqualityimprovements.Forinstance,inmanufacturingagoodfactoryorworkshopcanimprovethequalityofproducts.Savecosts:Externalcompanieshaveahighdegreeofspecializationwithregardtotheirservices.Theycanworkmuchmorecost-efficientlyandthereforeofferdiscountedrates.Lackofknow-how:Newprocessesandoperationsincompaniesareoftennecessary,buttheemployeesoftenlacktheknow-howandimplementationskillsrequired.Outsourcingisanalternativetohiringskilledworkersforthis.DifferentformsofoutsourcingTherearedifferentdistinguishedformsofoutsourcing:Businessprocessoutsourcing:Inbusinessprocessoutsourcing,entirecompanyprocessesareoutsourced.Anexampleofthis:youcanhaveyouremployees'payrollcreatedbyanexternalserviceprovider.Knowledgeprocessoutsourcing:Inthistypeofoutsourcing,complextasksareoutsourcedtoathird-partycompany.Anexampleofthiscanbethepreparationofsearchengineoptimizedtextsforyourwebsite.Therespectivecompanyusuallyhastrainedexpertswithahighdegreeofspecialization.Out-tasking:Inthiscase,onlyindividually-definedtasksarehandedovertoanothercompany.Oftenitisbecausetheyaretime-consumingandadministrativeprocesses,suchasthearchivingofe-mailsordatabackup.However,theresponsibilityforthisremainswiththecompany,asthewholebusinessareacontinuestobemanagedindependently.Selectiveoutsourcing:Selectiveoutsourcingmixesbusinessprocessoutsourcingandout-tasking.Distinctsub-areasareoutsourcedwhicharemoreextensivethanindividualtasks,butneverthelessdonotcorrespondtoacompleteprocess.FactThesubjectmatterandthedurationoftheserviceprovidedisrecordedinacontract.Thepartiesinvolvedoftenagreeonaservicelevelagreement(SLA)tobeabletoconcretelycontrolthecontractualrelationshipintermsofreactiontimesandservicequality.Outsourcing:examplesofoutsourcingtasksOutsourcingstrategiesareused,forexample,inthecustomerservice,accounting,taxconsulting,IT,andmarketingdepartments.Examplesofpossibleoutsourcingstrategies:Customerservice:Acompanyrelinquishesthetaskofcustomerservicetoaspecializedcompany.Oftencallcenterstakeoveracertaincallcapacityforafixedprice.Marketing:Acompanyoutsourcesthesupportofsocialmediachannelstoanexternalserviceprovider(e.g.anagency).Manufacturingofproducts:FormanyfashioncompaniesitistooexpensivetoproduceclothesintheUS.Therefore,theyoftenoptforproductioninAsia.Aftercompletedproduction,theclothingisthenshippedtotheUnitedStates.Thesearejustafewtypicalexamplesofoutsourcing.Inpractice,acompanytodaycanoutsourceeverystepofitsoperations,whetherinmanufacturingortheprovisionofservices,toanexternalcontractor.Thankstothenetworkedworld,itnolongermatterswhethertheforeigncompanyislocatedintheneighboringvillageorontheothersideoftheworld.TherightapproachDoyouthinkthatoutsourcingisthebeststrategyforyourbusiness,butyoudon’tknowhowbesttoproceed?Simplyput,thereisnosinglerightapproachtooutsourcingaproject.Justascompaniesaredifferenttooneanother,sotooareoutsourcingstrategies.However,thefollowingbestpracticemethodhasalreadyprovenitselfinmanysituations:Analyzethecurrentstate:Analyzetheactualstateofatask,asub-regionorabusinessprocess.Fromtheanalysis,youcandeterminethebestfurthercourseofactionandestimatethepotentialofanoutsourcingstrategy.Prepare:Organizeakick-offmeetingwithallofyourcompany'sstakeholderstogetthemostoutofyouroutsourcingproject.Inthemeeting,youcanlaythefoundationforfuturejointwork.Itshouldhighlightanddiscussthebenefitsoftheproject,thecontentandtimingoftheproject,andthenextsteps.Selectaserviceprovider:Comparepotentialserviceproviderswitheachother.Fortheselectionandinteractionwithpotentialserviceprovidersyouneedaproductrequirementandascopestatement.Inproductrequirementdocumentsyourecordallbasicrequirementsaswellastheroughprojectconcept.However,inscopestatementsyounotethecorrespondingsolutionsanddetailedrequirements.Onthisbasis,serviceproviderscancomeupwithnewsolutionsordevelopexistingones.Inaddition,youavoidpossiblemisunderstandings.Sticktoyourimplementationtimeline:Oncethecontracthasbeenconcluded,implementationcanbegin.Important:agreeonaconcretetimetableforimplementationinthecontract.Aspartoftheprojectmanagement,regularlychecktoseewhethercontractuallyagreedmilestonesarereached.MistakestoavoidOutsourcingisacomplexprocess,whichiswhytherecanbemistakesinitsimplementation.Evencomprehensiveplanningcannotguaranteeasmoothprocess.Herewelookatsomeofthemostcommonmistakessothatyouavoidthem:Wrongoutsourcingpartner:Companiescanchoosebetweendifferentoutsourcingpartnersdependingonthesubject:specializedmanufacturers,agenciesorself-employed.However,asatisfactoryresultrequiresacarefulselectionofthebusinesspartner.Arbitraryoutsourcing:Arbitrarilyoutsourcingtasksmaysaveyouwork,butrarelymakessense.Notonlyfromaneconomicperspective,itisbesttofirstanalyzethedifferentfieldsandactivitiesofyourowncompanyindetailandthenmakeadecision.Inaccurateagreements:Uncleararrangementswilloftenmeanyouasabusinessarenotsatisfiedwiththeresults.Therefore,itisimportanttospecifyinadvancewhatexactlyisbeingoutsourcedandhowortowhatextentthespecifiedcriteriawillbemonitored.Badcontracts:Anoutsourcingcontractshoulddocumentoutsourcedtasksandmutualobligations.Unclearquestionscanleadtomisunderstandings.Outsourcingabroad:whatisimportant?Doyouwanttooutsourcepartofyourworkprocessesandhireacompanyorserviceproviderabroad?Besuretoconsiderthesethreefactors:Timedifference:Thankstodigitization,youcancollaboratewithfreelancersfromaroundtheworld.Butinthecaseofanurgentassignmentorspontaneousmeeting,thetimedifferencecanbeadifficulty.Languagebarriers:FluentEnglishisoneofthemostimportantprerequisitesforoutsourcingabroad.Workingmethod:Techniquesandapproachesarenotthesameinallcompanies.Itislikelythatacompanyontheothersideoftheworldmightaddressaproblemdifferentlytothewayyouareusedto.Outsourcing:advantagesanddisadvantagesThedecisiontogivecertainfunctionstoanoutsideserviceprovidershouldneverbetakenlightly.Oncethetaskshavebeenoutsourced,reintegratingthembackintoacompanycanbeanythingbuteasy.Youshouldalwaysfirstcheckthatthebenefitsoutweighthedisadvantagesforyourcompanybeforeoptingforoutsourcing.AdvantagesDisadvantagesCorecompetencies:Thecompanycanfocusonitscorecompetencies.Dependence:Youmakeyourselfdependentontherespectiveserviceprovider.Iftheserviceprovidergetsintoeconomicdifficulties,forexample,thiscanmeanconsequentialcostsforyourcompany.Costreduction:Theprovisionofexternalservicesisgenerallymorecost-effectivethantheemploymentofspecializedemployeesinone'sowncompany.Lossofknowledge:Oneconsequenceofoutsourcingisthelossofemployeeknow-how.Timesavings:Smallbusinessesandtheself-employedneedalotoftimetofamiliarizethemselveswithnewareasofbusiness.Outsourcingsavestimeandenablesinvestmentinotherareas.Dataprotection:Outsideserviceprovidersmaygainaninsightintosensitivecorporatedata.Improvingquality:Theuseofoutsourcingstrategiesoftenresultsinqualitativeadvantages.Theseadvantagesareduetothehighdegreeofspecializationofexternalserviceproviders.Expensivereintegration:Ifyouhaveoutsourcedcertaintasks,alaterreintegrationintoyourcompanycanbeverytime-consuming.Theimplementationisexpensive,timeconsumingandrequiressuitablestaff.NoteYoushouldnotoutsourcethekeytechnologiesandcompetenciesofyourcompanytothird-partycompaniesasthesedifferentiateyoufromothercompaniesandcompetitors.OutsourcingisgainingimportanceManycompaniesresorttooutsourcingstrategiesinordertopurchaseservicescost-effectivelyandtobeabletofocusmoreontheirowncompetencies.Modernproductionandlogisticsconceptsarenecessaryforsuchmeasurestoachievethehoped-forsuccess.Thejust-in-timeproductionstrategyisanexampleofsuchaconcept.Materialsareproducedordeliveredonlywhentheyareactuallyneeded.Inthisway,acompanycansaveonstoragecostsandonlyhastopayforthematerialcostsduringproduction.Inthecourseofglobalization,throughgloballogisticsconceptsandtheconstantdevelopmentoftheInternet,itiseasierthaneverforcompaniestohandoveramoreorlesslargepartoftheirprocesstoothercompanies.Thosewhouseoutsourcingproperlycanspeedupworkflowsandimprovetheirproductsorservices,soitispossibletocounterthegrowingglobalcompetition.Clickhereforimportantlegaldisclaimers.09.11.18GrowYourBusinessRelatedarticlesLeanstartup:reasonswithoutrisk?25.10.2018GetStarted 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