Outsourcing can be defined as “the strategic use of external resources to carry out activities that, traditionally, are carried out with internal personnel and resources”. Outsourcing is in fact a strategy by which an organization entrusts major functionalities to external providers, specialized in certain services, who thus become “valued business partners” (partners providing value-added services).
Currently, most IT managers consider outsourcing as the most convenient solution for a company interested in becoming more efficient by reducing costs and accessing cutting-edge technologies, without spending significant funds on research and development. Moreover, outsourcing is also the simplest solution to the problem of the shortage of specialists faced by Western countries.
Outsourcing is not an absolutely new concept. Companies have always hired outside services for various types of internal operations, precisely in order to cope with tasks that they could not have done on their own, whether it was buildings, technology, people or other resources . However, the difference between simple “subcontracting” of some resources and outsourcing consists in the fact that outsourcing involves a much more efficient restructuring of certain business activities, using external partnerships with companies that have the necessary skills.
e-Outsourcing refers to the renting of IT products and services – from one source or from a variety of sources on the Internet – that can be adapted to the internal needs of a company. For example, a company can use a web hosting service provider to build and maintain its website, an application provider for specific front-office (CRM) and back-office (ERP) applications, or a security for installing and managing a firewall or virtual private network (VPN). Basically, these firms operate for the company as an internal IT department, dealing only with its core issues. The mentioned services can also be purchased in the form of a package offered by a single seller, which, in turn, takes over all these services offered by other sellers.
Low operating costs
The most important reason why companies turn to outsourcing is to reduce operating expenses. In addition, companies that want to do everything on their own have to incur much higher expenses for research, development, marketing and launch. Access to a more cost-effective structure offered by an external supplier, as well as the advantages due to specialization, are in fact the most significant tactical reasons why companies turn to outsourcing.
The focus of the company improves
Companies can focus on a wider range of business segments, while some operational details are left to an external expert. For many companies, the only reason they turn to outsourcing is that different types of activities require a large part of the company’s management time and attention. Most of the time, solving the problems generated by these activities gets stuck somewhere in a so-called “decision gridlock”, at the middle management level. This generates financial losses that will affect the future of the company.
Gain access to world class capabilities
By calling on the services of specialized providers, companies implicitly have access to their investments in technology, methodology and people – investments made over considerable periods of time. Among the capabilities of these providers is the experience gained in the respective field by working with various clients with similar needs.
Internal resources available for other purposes
Most of the time, the resources redirected through outsourcing are people. By entrusting the adjacent operations to external firms, the company can redirect these employees to other activities with a higher added value. Employees whose strengths were previously directed inward can now be directed outward, directly toward the customer.
Non-critical business functions
Outsourcing is the way to reduce the capital that needs to be invested in the adjacent activities of a business. Any company has a choice: it can acquire the necessary resources at great expense, in a short period of time and with uncertain results, or it can precisely delimit the costs involved, by following specific procedures, in accordance with a previously discussed and approved project, on a well-defined period of time. Moreover, the existence of guarantees for the ongoing project is an extremely important factor when a company chooses the outsourcing route.
Risk sharing
Companies that turn to outsourcing soon become more flexible, more dynamic and more willing to change to face the new transformations imposed by the current economy. The risks associated with the investments that a company makes in various business areas are enormous. Markets, competition, legislation, financial conditions and technologies are changing at breakneck speed. Keeping up with these changes – especially since they also involve significant investment in resources – is very difficult. When outsourcing is used, these risks are shared between several companies. A specialist service provider does not make investments on behalf of a single company, but on behalf of all its clients. By sharing these investments, the risks borne by a single company are considerably reduced.
Improving production and eliminating delays
Increased productivity – more forms/documents are processed in less time outside the company, and in this way company resources can be directed to core activities. The contracts provide for clear deadlines for the delivery of products or the completion of projects, any delay thus becoming the responsibility of the outsourcing company. In addition, the component stages of an ongoing project can be closely tracked.
Scalability
A cost-effective solution that starts moderately can be developed exponentially without increasing expenses and human resources. The design of such a product can be executed modularly, so that future additions or concept adjustments can be easily implemented. Costs can be easily tracked and shared, and scaling up existing solutions becomes a much simpler process with a much lower final budget.
Additional benefits
- Specialized, complete solutions at a professional level
- Ease of installation and configuration
- Integrated, powerful, flexible and secure applications
- Increasing accuracy, productivity and efficiency
- Reducing or even eliminating storage needs
- Higher morale of employees – they will be more intensively involved in the activities in which they are qualified, which will increase their self-esteem.
Major benefits can be registered not only in terms of cost reduction, but also in terms of companies’ responsiveness. In other words, job redefinition plus a better use of people and resources at the company level are likely to play an important role in making a decision to outsource certain internal processes to specialized firms.