Outsourcing refers to the transfer of all or part of a function from an organization (company or administration) to an external partner. It very often consists of outsourcing activities deemed non-essential and non-strategic: for a company, these are those that are the least productive of income. It is a strategic management tool that results in the restructuring of a company within its sphere of activity: its core competencies and core business. Outsourcing differs from the simple external provision of services, and simple subcontracting, in that there are close management by the ordering company and commitment of the external service provider.
The term outsourcing refers to IT outsourcing services offered by IT services companies.
Using an outsourcing solution is similar to adopting any new process. The initial steps include establishing a general policy, defining the company’s core business and a list of functions that can be outsourced, and then selecting suppliers. Any successful outsourcing will require internal and external communication perfectly prepared and implemented by the contracting parties to avoid the always possible blockages of the stakeholders (other suppliers, customers, employees, unions, third parties) in particular in the event of total or partial relocation.
Advantages and Disadvantages of Outsourcing
The four main advantages of outsourcing are:
- Control and reduce the operational costs of the company with the objectives of improving certain ratios, knowing and forecasting the amounts accurately. Outsourcing allows a medium and long-term vision given the slower evolution of external costs compared to the internal costs of the company.
- Invest in the most productive key areas of the company. Outsourcing then consists of focusing on your core business. This is all the more interesting when the outsourced activities are poorly controlled within the company, and are therefore carried out with more or less success within fairly long deadlines. In addition, the prospect of quality work would require high internal investments.
- Increase competitiveness by benefiting from recent human, technological and material skills: companies specializing in outsourcing are constantly making investments to remain competitive and thanks to pooling, these providers can offer the best profiles, processes and materials developed at very competitive prices.
- Anticipate, in order to accelerate structural changes: for example, when the time factor is a priority, the use of outsourcing will streamline and accelerate implementation, because of the speed of the process. Thus, the more the environment tends to evolve quickly, the more it makes sense to use an external service provider because it will be able to put in place the teams and resources necessary for the situation. The flexibility of the service provider will be appreciable, both during growth phases and decline phases.
Outsourcing also has disadvantages:
- The loss of control and skills within the company as well as the lack of training of employees who do not have the necessary tools to perform their duties.
- The feeling of belonging less important to the company that subcontracts and its projects of the outsourced team compared to an internal team.
- Dependence on the provider, such as delays that are too long or deteriorating service.
- A lack of information and transparency.
- Decrease in salaries paid to employees.
- The deterioration that the quality of the production or service provided by it.
- The lack of responsibility towards companies, as well as the conflict over the procedures to be followed, which creates an unhealthy work environment.
- The fear of irreversibility.
- Psychological factors, particularly for managers and existing staff questioning their retention in the event of their employer’s use of an outsourced team or a questioning of employers’ credibility and lack of benefits.