What is outsourcing and why you need it

The concept of outsourcing has entered into world practice just few years ago, but has already spread as one of the best practices worldwide.The idea of outsourcing is generally transferring certain company duties and operations to another company.

Companies quickly began to understand the benefits of the system, and now there is quite a high level of competition on the market of outsourcing services.

Outsourcing – What is it?

Outsourcing is practice of transferring certain business processes, functions or services to another organization. In general, outsourcing – is the use of outside resources in company processes.

The main traits of outsourcing

1. a Service Layer Agreement (SLA) describing transferred functions and responsibilities;
2. long-term contracts (over one year);
3. delegating secondary or peripheral operations only;
4. the ability to transfer business processes (accounting, personnel, maintenance).

What is the outsourcing company

The company taking over the functions is most often highly specialized. This increases the quality of service and level of responsibility. Such companies are called outsourcing or outsourcers.

Types of outsourcing

There are many types of outsourcing – almost all side activities can be transferred to the outsourced companies.

Accounting

Delegation of company accounting and reporting to a third-party organization is considered to be one of the most popular forms of outsourcing.

There may be several types of cooperation here:

1. making accounting reports;
2. record keeping;
3. full service (daily accounting, reporting, creating and maintaining the document flow).

In general, outsourcing accounting services is a convenient feature that allows you to keep all the primary document flow outside of the company, saving on money, resources and winning in productivity.

IT outsourcing

IT Outsourcing involves the transfer of a fairly wide range of activities related to the maintenance of computers and other office equipment. Any service in this area can be attributed to either the maintenance of the equipment (repair of the printer, desktop, etc.) or software (development, testing and maintenance of applications).

IT outsourcing is most widespread around the world. This is due to the rapid growth of IT sphere in general and high requirements to the specialists in this field.

Staff Outsourcing (Outstaffing)

Personnel outsourcing is more important for large enterprises, where staff turnover rates are high. HR management is very time consuming and costly.

Special recruitment agencies can take on the recruitment function, the calculation of salary tax benefits and compensations.

Payroll much less often becomes the object of outsourcing services.

Though the agency is not responsible for the quality of work done by the hired staff.

Legal

Legal outsourcing is suitable for medium and small companies. Legal outsourcing company will take on all duties related to legal documents and activities of the company. Also it can work on registration, reorganization and liquidation of legal entities.

Highly qualified lawyers of outsourcing companies can fully carry the legal function of the company. House lawyers are likely to cost more than a third-party specialist as the workload generally differs.

Logistic

Logistics outsourcing is also called transport outsourcing. It involves transferring transportation services outside the organization. This is useful for those businesses that use logistics services from time to time and there is no need to have our own logistics service.

Logistics company will take over the functions of inventory storage and products, their transportation. All processes associated with transportation and warehousing are also related to the competence of the transport company.

Industrial (manufacturing)

Industrial outsourcing is typical for high-tech enterprises. Companies involved in telecommunications equipment outsource the entire production process.

This reduces the cost of manufacturing, increased quality and reliability. Thus, they can focus on the promotion of existing products and development of new products.

Benefits

The main advantages of outsourcing are:

1. lower costs;
2. staff reductions;
3. the ability to focus on core activities;
4. receive services of higher quality;
5. the division of responsibility.

The outsourcing should be considered if keeping own department is more expensive than using outsourcing services.

The main advantage of outsourcing is the ability to focus on core activities. Since non-core processes are handled by another entity, more company resources can be devoted to the development of the enterprise itself.

Outsourcing and outstaffing companies usually offer better quality of work and bear responsibility for the results. Their specialization allows to save time on training staff and to use advanced technology, which is also an advantage for the contracting company.

Costs

In absolute terms, cost of outsourcing is higher than the involvement of a staff member. But you should also take into account real time savings when comparing and also take into account the side costs.

The outsourcing company is responsible for all payments related to employees’ salaries: insurance benefits, sick days, maternity leaves. Also, the outsourcer will take on all the payments in case of downtime.

Many outsourcing companies under long-term contracts offer discounts for the same amount of work. Payment for the outsourcing services is done on delivery.

There are three types of outsourcing of payment:

1. payment after delivery;
2. payment by the hour, specified in the contract;
3. payment of actual hours worked.

The most common is payment after delivery – the funds are transferred only after receiving specific quantifiable results.

Payment by the hour, specified in the contract, is used in outsourcing non-standard tasks, that do not have deadlines. In this case, the outsourcing company gives only estimated time that the receiving company agrees with in SLA.

Payment of actual hours worked is used, for example, when outsourcing HR company services. Their specialist spends time on HR activities. The specialist does not carry any responsibility for the worker after one is hired, so is paid only for actual time spent.