Outsourcing is a business system where a company hires a third party or another company to perform tasks, handle operations or provide services for the company.

The third-party company or individual, also known as the service provider, arranges for its own staff to perform the tasks or services either onsite at the hiring company’s own facilities or at external locations.

Companies today can outsource several tasks or services. These include.

·       Human resource services

·       Information technology

·       Manufacturing

·       Accounting services

·       Customer care services

·       Marketing

·       Administration

·       payroll

Some companies outsource an entire department like Human resources or finance, some outsource their entire IT department or an entire manufacturing system. For example, NIKE outsources virtually all its product manufacturing to many factories in Asia. Some companies outsource only a part of their job function like payroll or bookkeeping.

Outsourcing can involve using a large and established third-party service providers, for example a company like IBM can be hired to manage IT services or a FedEx Supply Chain for third-party logistics services. But it can also involve hiring individual independent contractors, temporary office workers and freelancers like hiring specialist companies like Coinbox Limited for HR and business support services or Five twenty Logistics Limited for fleet management or logistics chain support.

How outsourcing works

For a company to effectively outsource responsibilities, it is important to focus on the model and terms of the business partnership as much as the logistics. Outsourcing is a strategic business move for which the strategic intent should be clearly defined to guide the process.

Outsourcing is strongly about managing relationships, more than service-level agreements, and is a partnership, not a purchasing project. Maintaining and securing a trusted relationship is essential in outsourcing efforts and is more complex than establishing service levels and relationships. Communication and commitment to the success of the project is key between both parties.

Outsourcing involves clarifying your strategic intent (like comparative advantage, cost cutting, professionalism, skill set, risk reduction, etc.) then seeking an outsourcing partnership in line with that intent. Note that the outsourced company is a strategic partner and not technically your employee. Terms of engagement are discussed, agreed and contracts drawn and signed before contract execution. Terms of engagement examples include communication, reviews, SLAs, KRAs, and KPIs. Note that the success of any outsourcing project is guaranteed by the commitment and effective communication of both parties.

Reasons for outsourcing

Companies often outsource to lower their business costs, improve operational efficiencies, and gain speed. Other reasons are a need to focus on core business, risk sharing/reduction, government regulations and required skill set. The reasons are not exhaustive. Companies that decide to outsource rely on the third-party providers’ expertise in performing the outsourced tasks to gain such benefits. The underlying principle is that because the third-party provider focuses on that task, it can do it better, faster, and cheaper than the hiring company could.

Given such benefits, companies often decide to outsource supporting functions within their businesses so they can focus their resources more specifically on their core competencies, thereby helping them gain a competitive advantage in the market.

However, some companies decide to outsource for other reasons.

For example, they outsource because they’re unable to hire in-house, full-time employees with the specialized skills and experience needed to perform certain jobs.

Companies sometimes opt to outsource to shift meeting regulatory requirements or obligations to the third-party provider.

Furthermore, companies look to outsourcing providers as innovation centers.

In addition to cost reduction and increased efficiencies, companies that outsource could see other benefits.

By outsourcing, companies could free up resources (i.e., cash, personnel, facilities) that can be redirected to existing tasks or new projects that deliver higher yields for the company than the functions that had been outsourced.

Companies might find, too, that they can streamline production and/or shorten production times because the third-party providers can more quickly execute the outsourced tasks.

SMEs stand to gain a lot when they outsource as it reduces their business costs, and they get access to high quality and experienced staff they otherwise would not have been able to afford or access if they were to employ them in-house.

In all, the advantages of outsourcing far outweigh the disadvantages and should be considered as a very viable business strategy.

Coinbox Limited offers outsourcing as part of its services. Contact us today for your outsourcing needs. You can simply send an email to info@coinboxlimited.com.ng.

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