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Glossary: HR & Recruiting Definitions

What is outsourcing?

Outsourcing is the business practice of hiring third parties to conduct a service, process, or create goods typically performed by the business beforehand. This decision affects various jobs and workers, from customer support to manufacturing to the back office.

 Types of outsourcing

Outsourcing is an excellent opportunity to concentrate on your goals and trust essential tasks and processes to professionals without hiring a full-time or temporary worker. Some specialised business functions and duties are especially well suited to outsourcing. Here are some of the most popular outsourcing categories:

  • Engineering process outsourcing (EPO): A lot of companies decide to choose third-party businesses for processes which involve specific engineering functions. For example, automobile businesses outsource design engineers to access new markets and improve quality. 
  • Information technology outsourcing (ITO): An external provider for IT services, such as software engineering, product design, or technical support.
  • Knowledge process outsourcing (KPO): This term refers to outsourcing core business, processes, and tasks, including content creation, data entry, or market research. 
  • Legal process outsourcing (LPO): Most companies need legal services at some point, but not all have legal advisors on staff. Some companies outsource legal processes to third-party lawyers, who can take on non-substantive but essential legal work such as documentation review. 
  • Recruitment process outsourcing (RPO): Many companies hire third-party organisations to find qualified talent. Recruiters find, attract, screen, shortlist, and interview candidates.
  • Human resource outsourcing (HRO): Outsourcing human resource functions and job positions like payroll officer, onboarding specialists, and staffing can also be an excellent solution for companies.

 

Benefits of outsourcing

There are a lot of benefits to outsourcing in your business. Below we have listed the top 5 benefits so you can decide if outsourcing is right for you and your business. 

Lower costs

Outsourcing's most significant advantage is cost savings. It is a great way to cut operating, labour, and onboarding costs. For example, a company can cut labour costs by hiring freelancers since they don't get benefits or need office space. Furthermore, freelancers might be slightly cheaper; according to Huffspot, new employers have additional costs beyond their salary (e.g., recruiting cost, training cost, vacations and benefits, etc.), while freelancers have an exact hourly rate. 

Focus on core activities

Outsourcing allows businesses to expand temporarily when demand is high while allowing their employees to focus on the crucial goals and aspects that made the company successful in the first place. This is essential for small businesses and startups, which often operate on a smaller scale.

Promotes growth

Some operations might have high overhead costs, but your business might want to offer them to satisfy the customers or compete in the marketplace. If this is the case, outsourcing would be a great option to decrease those operation costs without creating inefficiencies in your business model. 

Maintains operational control

Your business might have departments or teams that have evolved into uncontrolled and poorly managed areas. If that is the case, an outsourcing company is an ideal solution. They often bring better management skills to your business than what would otherwise be available without significant restructuring. 

Access to a large target market

You might only have access to a small, local candidate pool when candidate sourcing. This often means you have to compromise. Many companies have found that outsourcing gives them access to a broader talent pool. If you need a specific job position, it makes sense to expand your search. 

Challenges of outsourcing

Outsourcing might seem like the perfect solution for your business now, but it is crucial to compare the pros and cons of outsourcing before making a decision. We have selected the top 5 biggest issues your business might encounter when outsourcing so you can decide whether outsourcing is for you. 

Logistic and communication issues

Adding an outsider service provider to your business operations can create new communication and logistic issues. This might happen, especially if your business and the outsourcing company have different company cultures, business practices, or project management styles. It is essential to oversee these problems in the early stages since they can be harder to fix as time goes on. This is especially relevant when working across time zones. 

Security vulnerabilities

Giving access to company information to third parties may create security vulnerabilities. It will be essential for your business to keep track of which contractors have access to which systems, which will be very time-consuming. 

Structural instability

Hiring an outside company might lead to uncertainty and instability, whether the level of control and quality might not be reached by the company providing the service or the possibility of them going out of business. It can be an expense since it would cost your business time, money, and possibly consumers. 

Impact on company culture

Although outsourcing has a lot of benefits, it can negatively impact the company culture. Outsourcing can potentially upset employees since they may feel they are being replaced, confuse employees as to why the business is outsourcing particular tasks, and add challenges to your company's daily workflow. Protecting your company culture before taking a step into outsourcing is essential, which means discussing your decisions with employees who might get affected. 

Do you think outsourcing tasks might be a good solution for your business? Then check out our article on how to find (and hire) good freelancers.

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