Posts Tagged ‘Definition of Outsourcing’

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by Oliver Schmid  – IAOP :: International Association of Outsourcing Professionals Member


1.) What is outsourcing?

For years, outsourcing has been on the mind of many business people but what one associates with the term outsourcing, might be conceived as something completely different by somebody else. The only common ground is the understanding to give a task or process that used to be performed internally to a third-party service provider for fulfillment.

2.) Types of Outsourcing:

Outsourcing can be as mundane as giving support to somebody else and might be as complex as having business core processes being performed by somebody else.

Typical tasks and/or processes that are outsourced can be:

  • Partial or Total Outsourcing: Some functions or tasks will be outsourced partially while other will be outsourced in its entire. Partial or complete outsourcing can also be seen differently and depends of the viewpoint (Customer / Provider) of the parties involved. It also depends of the overall functionality of the to-be outsourced operations and can often not be determined clearly.
  • There is outsourcing of only operational functions vs. outsourcing of functions, tools and personnel.
  • Business Process Outsourcing (BPO): Interpretation of the meaning of BPO varies and depends again on the point of view. From a customer point, it could be giving away an in-itself-closed-business-process for which the provider carries complete responsibility. From a legal aspect, it is imperative to define all roles and responsibilities in a contractual from and every party involved need to understand their individual responsibilities and the consequences for non-compliance.

3.) Goals

The possible reasons for customers to look more closely at outsourcing to are equally diverse and complex as its possibilities and approaches.

Therefore, only some of the usual motivations for outsourcing will be referred to here:

  • Focusing on core business:
    • An organization wants to concentrate its resources on its core business, and therefore functions that are not part of its core business will be outsourced.
  • Cost savings and optimization:
    • An organization wants to reduce its cost of doing business through outsourcing by creating a flexible cost structure, which is directly related to the performance of its service provider.
  • Purchasing skills:
    • An organization wants to benefit from the increased competence of the provider who considers the to-be outsourced function as its core business. Often, an organization also wants to reduce its performance risk through contractual reassignment of performance risk to its service provider.
  • Flexibility:
    • The provider can often offer the customer more flexibility in the implementation of the delegated services than it would have been possible to a customer with its limited resources and scope for action.

4.) An outsourcing project is divided generally into:

  • the preparatory and planning phase, which includes the Baseline analysis, defining goals and determining the future procedures,
  • the initiation phase with the selection of the provider. and the contract negotiations,
  • the implementation phase with the transfer and the Setup of the facility (or Transition to Operate) and finally the actual
  • the start of the actual operation

Looking at the continuous “life” of an outsourcing initiative the following phases will follow:

  • Review and optimization of relationship and implemented processes
  • At contract expiration either the transfer of all functions to a new service provider or the return of the outsourced functions to the organization (insourcing)

5.) Preparation & Planning:

At the beginning of each outsourcing, a strategic analysis is performed to determine which services or which divisions will be outsourced as well as where the interfaces between the internal and external providers will be in the future.

Following this phase the outsourcing scope will be defined, which will include the functional spectrum. It should definitely be avoided not to make any clear commitments at the beginning, because the scope is the basis for all further tests, the structuring of the outsourcing and the subsequent tender.

The next step would be the internal analysis (assessment) of all areas that are part of the scope:

  • What personnel and which assets are involved?
  • What type of data is available?
  • Current Cost?
  • Which services are currently performed internally and which are already performed externally?
  • To which extend have processes and services already been documented?
  • What is the quality of the currently performed services?
  • Is delivery of services consistent with the according service performance documentation?
  • Are there any legal aspects that need to be considered; e.g. transfer of licenses?
  • Are there any industry-specific aspects to be considered (e.g. in the financial area)?

Oliver Schmid has extensive experience in offshore outsourcing to the Philippines, nearshore outsourcing to Canada and onshore outsourcing of matrix oriented call centers.  He is also versified in outsourcing of data center operations and data center monitoring and support. In addition Oliver Schmid participated in various 3PL and Supply Chain outsourcing initiatives.


Oliver Schmid, EzineArticles.com Basic PLUS Author


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The Structure of Outsourcing by Oliver Schmid is licensed under a Creative Commons Attribution-ShareAlike 3.0 Unported License.


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A Definition of Outsourcing


Outsourcing is all around us and has always been. It just has become more apparent in today’s difficult economic times.

 

Unfortunately, outsourcing today is mostly associated with “Offshore Outsourcing”; meaning sending a certain function, business process or job to an oversea third party service provider, who has the ability to perform the same for less money.

We have to get away from this mindset that OutSourcing is equal to sending work overseas. Think about it, outsourcing has always been a part of our daily lives; as well in business as at home.

Some examples of business outsourcing are:

  • Hiring of cleaning crews to clean offices
  • Having trucking companies or the post office deliver your products and your mail … and YES this is outsourcing in its most basic form
  • Hire external service companies to maintain office equipment, like copiers, faxes, computers, etc.

Some examples for outsourcing in everybody’s private life:

  • Hiring a student to tutor your children
  • Hiring a cleaning person to clean your home (occasionally)
  • Taking a bus or train to work … and yes this is outsourcing, since you give somebody else the responsibility to get you from point A to point B and you don’t drive yourself.
  • Visiting a doctor… again, this is outsourcing. Who can afford to have their own doctor or nurse on staff?
  • The list goes on …
  • … and also here the list could go on and on.

Anybody may come up with their own examples about what they do not do themselves anymore in their daily life. Next, I want you to think about why you “Outsource” this functions or tasks and I bet that in 99.9% the answer is either money or lack of experience.

 

The same is valid for businesses. Outsourcing today is done because it just makes sense. Rather then investing in resources and additional education to do something that is not really a part of the core business function does not make sense anymore. It is cheaper and more effective to hire somebody who specializes in this area and has the skills, knowledge and the tools to perform the same function often even better and for less money or to say the least at the same cost to you.

Outsourcing does not make sense if one pays more for a service than if it would be performed inhouse. There for any outsourcing initiative must be evaluated carefully and a cost benefit analysis must be performed at all times

Again, Outsourcing does not mean a function is send overseas. There is onshore outsourcing, meaning outsourcing is performed by an entity in a neighboring or close by country or domestic outsourcing, which means the function is performed by somebody local or at least the same country.


Oliver Schmid, EzineArticles.com Basic Author
Oliver Schmid has extensive experience in offshore outsourcing to the Philippines, onshore outsourcing to Canada and domestic Outsourcing of matrix oriented call centers.  He is also versified in outsourcing of data center operations and data center monitoring and support. In addition Oliver Schmid participated in various 3PL and Supply Chainoutsourcing initiatives.