What is Outsourcing and how does it work?

by Proximity CRC Nearshore Software Development

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. The most common outsourcing activity is hiring freelancers or professional agencies to perform highly specialized elements of a project. This could include software development work, marketing activities, customer service roles, cleaning or security services and more.

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.

Some of the 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.

● Flexibility: Since the resources are external, you can bring them based on your specific needs, for the time you just need them (even for short periods of time)

● 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 a 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, etc)

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.

Before choosing an outsource partner, ask the following questions.

● Does the selected offshore partner have experience in the particular service that you want to outsource?

● Has your selected outsourcing service provider been able to provide quality services to other companies like yours?

● Does your chosen business partner use the best in technology, software and infrastructure?

● Does your outsourcing provider have experienced, trained and qualified professionals that can efficiently handle your projects?

Asking these questions, and validating the responses you get from multiple potential providers will help you to make the best decision.

Once you have chosen your partner:

As important as choosing the right partner, creating the right business relationship is equally key. Once your decision is made, make sure you work on the following aspects:

Establish open communication and a close relationship: Whether in person or through video conferencing tools, it’s important for you and your new business partner to see and hear each other. Arranging visits to the offshore office to meet the people you’ve partnered with, and the employees carrying out your tasks can make a huge difference in the results.
Define business roles and responsibilities: Discuss partnership details like budget allocations, goals, and other plans in the future. You must also define the business roles to let both companies understand the extent of their responsibilities, and streamline work processes.
Define the success criteria: Make sure all parties involved are on the same page in terms of expectations and the way success will be measured and aligning your goals.
Create an environment based on trust: Establish a healthy relationship based on trust. You can need to have a balance where you keep an eye on your partner while providing a healthy distance to give it enough legroom to grow, innovate, and exceed your expectations.