What is Outsourcing and how does it work?
Outsourcing is a practice some companies have of subcontracting products or services from an external supplier. In general terms, the goods or services that are subcontracted are not part of the core business of the company that is subcontracting.
There are many reasons why companies decide to outsource skilled activities and this is a common practice among big, small, and medium-sized companies; where outsourcing is sometimes the only option to get things done. Some of the main reasons businesses outsource skills or products may include:
• The inability to develop the product or obtain the service in-house
• The need to reduce costs.
• The goal of expanding capacity
• The short-term need for staff or product
• The need for specialized and scarce resources.
Benefits of Outsourcing are:
• Cost Savings: Outsourcing activities normally reduce costs as you don't need to invest in extra software, hiring costs, and direct costs related to having employees and their benefits.
• Time Savings: By outsourcing tasks, things can get done quicker and more efficiently.
• Higher Efficiency: Outsourcing non-fundamental activities to external resources allows you to focus on your core business activities.
• Access to Scarce talent: Having access to talent that can be scarce or very expensive is an advantage when outsourcing. For example, for US companies, outsourcing your software development needs is common practice with multiple benefits, especially when it is done in a Nearshore model to countries like Costa Rica, that is very close to the US, works in a similar time zone, have a strong alignment in terms of the business culture and the way they do business, while having the benefit of a lower cost for highly talented resources.
How does it work?
Outsourcing is a strategy that companies use to improve their competitiveness, but in many cases, the company knows they need help but they are not sure about what. It is here when it is key to clearly define what needs to be done, what are the skills and knowledge needed, and the specific requirements that the company has for the work to be done (technology uses, tools, methodology)
Choosing the right outsourcing partner can be a challenge and the best approach is to first define the final result and your expectations of the outsourcing relationship.