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 spe­cial­ized 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 spe­cial­izes 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 labor. 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 spe­cial­ized 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 spe­cial­iza­tion 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 optimized texts for your website. The re­spec­tive company usually has trained experts with a high degree of spe­cial­iza­tion.
• 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 spe­cial­ized 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 US. Therefore, they often opt for pro­duc­tion in Asia. After completed pro­duc­tion, the clothing is then shipped to the United States.

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 neigh­bor­ing 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. Analyze the current state: Analyze 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: Organize 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: spe­cial­ized 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 analyze 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 dig­i­ti­za­tion, 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 glob­al­iza­tion, 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.

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