What is Outsourcing?
The term outsourcing originally comes from the merger of two words: out (external) and source. Outsourcing means delegating the company’s tasks and processes to third-party executors on subcontracting terms. It should be also mentioned there is an option of collaborating when outsourcing company performs its potential on a prepaid agreement. Delegating a part of tasks or specific department performance as well as hire remote employees to cover narrow range functions is selective outsourcing. This is an agreement where the working process is carried out by people from third-party companies, who are usually experts in this kind of work. Outsourcing is often used to optimize a company’s expenses and save the budget. By delegating strategically important processes to outsourcers (a business partner who takes remotely “alien” functions of a company customer on itself) the company makes a mutually beneficial exchange.
According to the United States Outsourcing Institute – it’s a developing optimization type of any size businesses and enterprises. The greatest growth has been observed in the field of finance and accounting, but today, any size businesses obtain significant benefits from outsourcing. Statistics compiled by the American Management Association in 1997 showed by that time 20% of the 600 surveyed companies had outsourced at least part of the remote financial, accounting, bookkeeping, dispatching and IT operations, and 80% – a part of administrative functions like customer service, personal assistance and call center services.
Effective business development
Outsourcing also answers the question – to buy or to do by yourself everything you need for efficient business? At the same time there are only 3 decisive criteria:
- The cost of producing products or services
- Product or services quality
- Business strategy
Based on our experience in providing outsourcing services for companies all over the USA and Canada, we can highlight one more important criteria to select the most appropriate company to work with: confidence in the receiving of high-quality services.
The main criterion for delegating of any business process or business function to outsourcing is a competitive environment. A monopolist is rarely customer-oriented and takes care only about ensuring a competitive price for its services. So the goals of outsourcing are: reduce the company’s costs on salaries, office rent, equipment, and taxes; increase business efficiency; free up a number of resources for the development of new areas or concentration on existing ones. Read more about our proprietary human resources management model.
History of Outsourcing
The concept of outsourcing the same as its history is quite young. This term was widely adopted only in the late ’70s of the last century.
It is generally accepted that modern outsourcing has started from UK USA law companies, who began to provide consulting services to their partners in the early 20th century.
The history of outsourcing is closely connected with the confrontation in the 1930s by two giants in the automobile industry: Henry Ford and Alfred Sloan. When General Motors was almost on the verge of collapse thanks to outsourcing Alfred found a solution to get out of a difficult situation. Thus, they have proven to the whole world that delegating of background business processes is one of the most effective options for the development of any enterprise.
But real popularity outsourcing has received due to the development of the IT industry and particularly due to the Internet. A lot of companies required professional services related to the IT including development and engineering, technical support, telecommunication platforms, CRM systems, and web development – creating their own Internet pages for promotion of their products. One remote IT specialist and even whole outsourced IT department either has been proving that it is the most optimal way of conducting business.
The new millennium was marked by the rapid development of outsourcing in the world. More and more companies have decided to evaluate all the benefits of such management for their business. As a result, some brands delegated almost all auxiliary processes (up to 90% of the total number of functions) to subcontractors. Thanks to this they can fully concentrate on their core business leading to a positive financial effect.
Outsourcing predictions for 2019
Global outsoursing industry revenue from 2010 to 2018 by service type
Global outsourcing industry revenue from 2010 to 2018, by service type (in billion U.S. dollars) (source: Statista.com)
This chart shows how outsourcing has grown since 2000. Despite the drawdown in 2016, in 2019 it’s very promising for those who take the right place in it.
Virgin America performs aircraft repair and maintenance, baggage delivery, ticket booking, providing passengers with food and other functions not buy regular staff. They outsource staff from third-party contractors. “We will outsource everything that is not directly related to communication with customers,” said David Kush, the airline’s general director.
Alphabet has been the best employer 7 times for the last 10 years according to Fortune magazine’s rating, has almost the same number of regular and hired in third-party trusted outsourcing company workers.
Around 70.000 outsourced employees test Google‘s self-driving cars, sign up documents, improve the company’s products, analyze data, conduct marketing activities.
The predictions for the future of outsourcing
According to research from 2005 to 2015, the number of employees hired through the contractor has increased from 0.6% to 2% of the total US workforce. The number of outsourced workers often reaches 20–50% of the total staff in big companies. The quantity of outsourced staff in Bank of America, Verizon Communications, Procter & Gamble, and FedEx comes to thousands. In the oil, gas and pharmaceutical sector outsourced staff can sometimes exceed the number of constants at a ratio of 2 to 1, says Arun Srinivasan of SAP Fieldglass. So, delegating functions to outsource is becoming a global trend for almost all industries.
So, below are our predictions for the future of outsourcing:
- Small businesses, startups and companies of the SOHO format (“small office/home office”) will be proactive to take advantage of outsourcing due to increasing operational efficiency and saving time.
- The larger number of critically high-level business functions will be outsourced in the next decade. Outsourcing of low-level functions will be stabilized.
- Outsourcing of IT development and technical support direction will increase in demand because of rapidly growing cloud computing services.
Will outsourcing disappear in the upcoming years? Definitely not. Outsourcing services providers can confidently take their way. As they provide access to specialized skills and not just save time and resources, but also allow them to focus on solving key business issues.
Types of Outsourcing
Business process outsourcing
The “business process outsourcing” describes a complex of secondary technological processes with constantly changing composition. Typically, this complex includes finance and accounting, labor, supply, payroll accounting and accounting, internal audit, tax calculation, customer service centers and a number of industry-specific processes. Learn more