Outsourcing

What is outsourcing?

Outsourcing is when a company hands specific functions or business processes to an external provider that carries them out with its own people, tools and responsibility under a contract. The client pays for the result or volume of the service, not for the hours of specific specialists.

Companies usually outsource work that isn't their core competence: accounting, IT support, software development, cleaning, logistics or parts of HR. This gives them expertise without hiring an in-house team and lets them focus on their main product.

Types of outsourcing

By the function handed to the provider:

• IT outsourcing: software development, infrastructure support, testing.
• Business process outsourcing (BPO): routine operations such as accounting, payroll, call centers and document processing.
• HR outsourcing: handing over HR functions, including recruitment (RPO), HR administration or training.
• Professional outsourcing: legal, marketing and consulting services.
• Manufacturing outsourcing: producing goods at another company's facilities.

By the provider's location:

Outsourcing vs outstaffing

Outsourcing is often confused with outstaffing. The key difference is who manages the people and what the client pays for:

A similar model for hiring abroad is an employer of record: the provider formally employs the person in their country, while the client company manages their work.

Pros and risks of outsourcing

Pros:

• savings on hiring and maintaining an in-house team;
• fast access to expertise the company doesn't have;
• flexible scaling: the scope of services is easy to increase or reduce;
• the in-house team stays focused on the core product.

Risks:

• less control over the process and quality;
• risk of data leaks, which is why contracts are backed by a non-disclosure agreement (NDA);
• dependence on a single provider;
• language and cultural barriers and time zone differences.

How to prepare for outsourcing

• Decide what to hand over. Clearly defined processes are better candidates for outsourcing than the company's core expertise.
• Define the expected result. Set out SLAs, deadlines and KPIs in the contract to evaluate the provider.
• Protect your data. Limit access and sign an NDA before work starts.
• Appoint an owner. Someone on the company side should set tasks for the provider and accept the results.

HR and recruitment outsourcing

In HR, companies most often outsource payroll, recruitment and HR administration. Recruitment process outsourcing (RPO) hands part or all of hiring to an external partner, from sourcing to screening and interviews. It helps during hiring peaks, but the company still needs its own view of the recruiting funnel and of who joins the team.

When part of your team works through outsourcing or outstaffing, it helps to see everyone in one system. In PeopleForce Core HR, employment types are configurable (for example, full-time, contract or contractors), and reports can be filtered by them. And if you decide to build recruitment in-house instead of RPO, the Recruit module helps you manage vacancies and candidates in one place.