What is outsourcing?
Outsourcing (from the English “out” — meaning “external,” and “source” — meaning “resource”) is the delegation of tasks, projects, and business processes that were previously carried out within a company to an external organization.
Why do companies turn to outsourcing companies?
- Lack of internal executors:
In conditions of labor shortages, organizations seek help from outsourcing companies. Their employees, possessing the necessary expertise, perform the tasks required by the client. - Lack of competencies:
Companies may resort to outsourcing when they need to think through and create a project from scratch in a field that is alien to their business. For instance, a bookstore, food delivery service, or marketplace can outsource the creation of a mobile application or website.
Which companies use outsourcing?
Projects and entire business processes from various sectors are handed over to outsourcing. According to the Deloitte Global Outsourcing Survey 2022, 64% of companies utilize outsourcing services for legal issues.
61% of businesses outsource tax accounting, while 57% do the same with HR management. Only 51% of companies outsource accounting.
The IT sector has also seen a rise in outsourcing. Issues related to cybersecurity, software and application development, and the implementation of new technologies are outsourced by 78 to 81% of organizations.
Companies from any sector can turn to outsourcing services. However, working with outsourcing companies has both advantages and disadvantages.
Advantages of outsourcing:
- Cost reduction:
Research from the analytics platform Statista shows that the primary reason for outsourcing tasks is cost reduction. The company does not need to spend money on recruiting and training staff, as well as on providing infrastructure and equipment. Contractors are paid based on the volume of work specified in the contract, whereas a full-time employee would require a fixed salary regardless of workload. - Efficiency:
Outsourcing can complete tasks promptly since it is part of their expertise. Employees do not need to spend time on training. - Focus on core activities:
Managers of the client company do not have to master a new field or learn something from scratch. They can focus on their familiar profit-generating processes without distraction. - Simplified documentation:
Delegating authority to outsourcing allows businesses to maintain their status as small businesses and not register a new OKVED (Russian Classification of Economic Activities). The need for meetings regarding tasks and developing protocols for work processes diminishes. - Opportunity to implement new approaches:
Outsourcing organizations have high competency in areas that may be unfamiliar to the client. They monitor trends and offer various solutions to problems. The client can implement these solutions into their own work after accepting the completed tasks. - Expert contacts:
By collaborating with an outsourcing organization, a company gains access to professionals with unique experience. Outsourcing typically works with multiple clients facing similar tasks, allowing them to refine various case studies. These workers become experts and know how to act in crisis situations.
Disadvantages of outsourcing:
- Risk of information leakage:
Research by Kaspersky Digital Footprint Intelligence shows that in 2023, 310 million confidential data records became publicly available, which is 33% more than in 2022.
Modern technology is evolving rapidly, putting corporate information security at risk. However, there are methods to reduce the risk of such leaks into the public domain.How to avoid information leakage when working with an outsourcing company:- Specify responsibility for data leaks in the contract.
- Provide information access to contractors, not the entire company.
- Encrypt the information transferred to outsourcing.
- Train outsourced employees to handle confidential materials.
- Transmit necessary information through secure communication channels and store it on protected servers.
- Lack of full control:
The client of an outsourcing company often cannot monitor the quality of work being performed at various stages. This can lead to the final product not meeting their expectations. - Vulnerability to circumstances:
Collaborating with an outsourcing organization means the client loses control over work processes. Outsourcing may face issues that could halt development, leading to missed deadlines. These problems could include the bankruptcy of the organization, political instability, or environmental crises. - Mismatch of results with expectations:
Employees of the company always have a better understanding of the brand than those working on the project in outsourcing. This can result in the product from external authors being incompatible with the concept presented by the client.