How Business Outsourcing Works?

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Outsourcing works as a contractual relationship in which there are two parties, on one side the contracting company (client or main company), which is the one that needs to be provided with a service that it does not want to develop itself, on the other side the company contractor (supplier or external company), which is the one in charge of providing the service to the contracting party.

In the outsourcing modality, the client informs the supplier of the results that he wishes to obtain from the process, known as deliverables, but does not give him instructions on how to carry it out. That is, the contracting company transfers part of the knowledge of the business to the contractor, as well as a portion of its administrative or operational control.

In turn, the contractor agrees that the customer will own all patents, utility models or other intellectual property rights covering the deliverables and will have all rights to use them commercially.

The collaboration between the two companies does not imply that a subordinate relationship is legally establish between them or between their workers. In other words, the contractor is not the employer of the workers that the contractor has to provide the service and vice versa.

The strategic outsourcing process

The implementation of business outsourcing in a company will be positive when results are obtained that are aligned with its strategy. For this, it is advisable to start with small advances. That only contemplate a few critical activities. For example, instead of outsourcing the entire accounting area. Start with the treasury subdivision. In this way, experience is obtain in the new administrative order. And in the relationship with the contractor, once the practice has been obtain and evaluate. It can continue to be extend according to the results obtain.

Regardless of the level of depth of the implementation, it is advisable to at least comply with the following stages:

Internal analysis

Initially, the aim is to identify:

  • The weaknesses and strengths within the company.
  • The fundamental activities or processes that generate competitive advantages.
  • The cost factors, that is, which activities are cost-efficient and which are not.

External analysis

Next, it searches for:

  • Identify opportunities and threats in the immediate environment.
  • Clarify the cost factors of competitors in the industry.
  • Know the structure of the competitive forces of the sector to which the company belongs.

Once these analyzes have been carry out, it will be known in which processes outsourcing can be apply. These are the processes to which resources would be mobilize in order to leverage the competitive advantage?

Hiring

Third, the logistical requirements necessary to carry out the outsourcing are identify. It will be decide, for example, if the team of people who will provide the service will be house within the company itself.

In addition, an operational and financial evaluation is carry out, among other aspects, of the possible partners, which allows the final selection to be made base on their most strategically covet capacities. It is not recommend that a large percentage of the decision be justify by cost efficiency. It is possible to make the selection through competition or bidding.

Also, the business model to be offer to the contractor is establish. For example, one could work under fixed-price or profit-sharing modalities, depending on which is more profitable and generates greater incentives, for which a cost-benefit model can be use. The entire legal process of contracting and legalization is carry out.

Implementation

Finally, the outsourcing of the select activity or group of activities is start, but not without first having determine the control points on the process. It is through these that the level of compliance with service levels is determine.

Additionally, we work closely with employees to ensure a positive transition to the new operating model. It is very important that they understand the reasons for the restructuring and the benefits. It can generate at all levels of the organization. These actions are aim at the well-being of employees, as well as the stabilization and improvement of the work environment.

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