Welcome to Outsourcing Interaction! This is an analytical approach case study.
Outsourcing is the most talked topic these days often referred to as the most important management development of the decade. It is based on a simple rule, if something is not the core competency of your company then simply just takes the task and contract it out. As Tom Peters said, “Do what you do best and outsource the rest”
Outsourcing is an important and a simple tool for world-class companies that allow them to improve their product and services, increase the net profit and grow the businesses. Apart from this, outsourcing impacts both positive and negative aspects of a business.
- In the positive aspect: It takes huge benefit for businesses in terms of cost savings, better outcomes, increased productivity, improved accuracy and efficiency, allow employees to do the things that they can do best.
- In the negative aspect: Citizens lose their jobs because either their company fires them or outsourcing a part of their work and they have fewer resources to earn.
Let’s get into the details.
What is ‘Outsourcing’
Outsourcing entered the English-speaking lexicon in 1980s to designate a business practice in which a company hires third-party service usually located outside of the country. Initially, this was used to cut costs. In today’s world it is also a strategy management option.
It can more simply be defined by this picture
Alphonso Jackson defined the common motive of companies as, “When work can be done outside better than it can be done inside, we should do it.”
When Outsourcing First Started?
Believe it or not, outsourcing is not new. It began few thousand years ago and started with selling of foods, tools and other household goods. It was known as ‘barter system’ when the people of a village traded for goods. They trade what they produce on their lands. After that, money was introduced to simplify this process and every person started sharing some sort of the work with other workers in exchange of money.
Why do people outsource their work?
Once you get started with outsourcing you would be amazed to find how useful it could be for your business. Most of the companies claim, they outsource their work for cost-cutting but there are extra benefits they get:
1) Get experts: Team of experts would be ready to handle the load of your projects. They might have already experienced with your business niche and can give you good quality, expert guidance and better exposure.
2) Release burden: If you outsource most of the tasks, you don’t have to worry about many employees separate desks, computers, life insurance, vacation, personal problems, sickness, 15 plus holidays, retirement etc.
3) Pay on Deliveries: You don’t have to pay monthly wages similar to your onsite employees – you can pay them after the work! (it is briefly defined below)
4) Analyze day-to-day progress of work: Because of the time zone difference between Asian and the Western countries, you can get your work done while your business closes down in the evening that is your core competency and you get complete report of your outsourced non-core tasks at a very next day.
5) Improving customer service: Through outsourcing you can service your customer’s faster, satisfaction, reliability, better quality and decrease turnaround time.
Why Outsourcing is Increasing?
Love it or hate it, outsourcing is a trend that is not going away. Most of the companies are launched by engineers or operations professionals. They are able to grow at a certain level after that, a company may go stagnant and need more professionals in order to achieve the next level of growth but it is not easy to find the professionals quickly and on affordable wages. So, they look to outsource the work to achieve the upper-level.
The rate of outsourcing is increasing every year and outsourcing job hasn’t hurt the economy (BusinessWeek). In today’s world, it is very important for companies to reduce expenses for the Global competitive market. For example: An American company charge $70,000 to build a software while a Chinese company create that software for just $8,000 with the same quality and quick time. Why shouldn’t we source the work?!
In a survey by the Society for Human Resource Management (SHRM), HR professionals were asked why they outsource their work:
Image data from About.com
Involvement of Countries
India is leading the race and followed by China and Malaysia. Choosing the best location for outsourcing can have a significant long-term impact on your business growth. Here are the top 20 countries, each country has been scored across the number of key statistics, where cost Competitiveness, Resources & Skills, and Business & Economic Environment are the noticeable areas that will help you to make a decision.
Image data from Sourcingline
Active Areas / niche in Outsourcing
In today’s global economy, outsourcing has become a very common phenomenon. It is now getting involved in most of the areas, many large organizations outsource some of their tasks to reduce the cost and save the internal resources for the other work that are necessary to do onsite and cannot be outsourced. Here are the major areas of outsourcing:
Image credit: OutsourcingDefined
IT is considered to be the most prominent area of Outsourcing and still rising as it is proven to be the most flexible and effective strategy tool to grow companies rapidly. One of the main reasons of increasing IT outsourcing is Freelance websites that help large organizations to find the right professionals and companies to take over part of their work.
Role of Social Media to Recruit
Social Media platform also support companies or industry experts to hire individuals to take the part of their work. Society for Human Resource Management reports that companies are using Linkedin, Facebook and Twitter to recruit.
56% organizations stated that they currently use Social media, raised from 34% in 2008. In addition, 45% companies who don’t plan to use social media, dropped to 21%.
Linkedin come at first in Social Networking websites, used most often by organizations with 95% followed by Facebook with 58% and Twitter with 42%
In addition, approximately 18,400,000 Americans said, they got their current job through Facebook (Both outsourcing and in-house jobs included).
Role of Freelance Websites in the Race of Outsourcing
Outsourcing is a way-out to release some burden from the company’s executives and freelance websites become helpful to get Low-Cost skilled workers… There are a lot of freelance websites out there on the Internet. They played a vital role in helping IT companies to find a reliable team and an individual to take-over part of their work.
Let me answer some of your questions. You may be thinking about using freelance website, funding and benefits – is it easy? Yeah!
How Freelance website works
A company contracts with an outsourcing provider to do a defined SOW (Scope of Work) and the outsourcing provider charges the company a fee. This fee can take from different methods: by the transaction, by labor hour, cost per project, an annual cost, cost by service levels, or other possible arrangements.
Benefits of Freelance website
Freelance website’s not just helps companies to hire the right professionals for their work. Also, it gets freelancer’s a greater variety of assignments than in regular employment, earning regular income, freedom to choose their work schedule and to form a working relationship with clients. Freelancing experience can lead them to a broad portfolio and established clients into their network and it becomes the process of earning lot of money for a long term.
Apart from the freelancer’s benefit – Freelancer.com played a vital role in helping businesses to find the ideal candidate at a low cost, professional work, quick timing, release burden, easy funding and long term easy relationship.
How Does a Company Pay For the Services?
Two kinds of Payments often made on Freelancer.com 1) Hourly rate and 2) Fixed price. When both parties (freelancer and buyer) agreed to work on one of those payment schedules, buyer accepts the bid then within the estimated time selected candidate has to finish the defined SOW (Scope of Work).
Once a buyer satisfies with all the work done, he / she released the payment that credits into the worker account safely! After the payment, workers can easily take out the money from Paypal, Wire Transfer, Moneybookers or any other suitable method where they can easily utilize that money.
I hope you enjoyed the post. If you have any confusion or need to ask anything, please feel free to ping me in the comments below 🙂
I think the main reason why companies outsource is because of limited budget. Majority of remote workers are based in 3rd world countries which have lower work rates, this might sound negative for some but it is not.
Companies can provide remote workers higher salaries without hurting their budget making it a win-win situation for both parties.
I have nothing against freelancers but I would suggest that it’s better to have reliable outsourcing company that would manage your remote workers. There are BPO companies that make remote workers work like regular employees with fixed schedule take Remote Staff’s outsourcing service for example.
Evaluate the tasks before considering outsourcing; not all jobs are to be outsourced and in the long run, as your business grows, you would need a physical office.
Thanks for the very interesting post about outsourcing. I found the section "Why Do People Outsource Their Work” especially interesting. Like you mentioned, most companies claim they outsource for the cost benefits but I agree there are a lot of other benefits as well. Improving customer service is a big one. I outsourced my company's customer services to a web help desk and it significantly improved my customer's experience and satisfaction with my company. Outsourcing gave my customers faster and better quality service and allowed me to focus on the core aspects of my business. Thanks again for the post.
I completely agree with you here. Technology companies in leading countries of the world, such as the United States, feel significant shortage on the labor market, and the process of finding and hiring new personnel is becoming more and more expensive. This creates favorable conditions for the outsourcing of software development, forcing many technology providers to seek additional opportunities both in their own country and abroad.
But I think that here you need to be very careful when choosing a contractor, because the competitiveness of this market is very high. I think it’s best to trust companies with experience, such as Redwerk, for example. These guys are real pros of the traid. They provide with preliminary estimates. They have specialists of any kind: architects, software & quality assurance engineers and UI/UX designers, so they can build your solution from scratch up to roll out and provide you with maintenance, as well. So if you want your business enhanced and need an on-time and on-budget delivery then this is the right team. BTW you can visite their site https://redwerk.com/ and check their Case Studies.