What is Outsourcing and How Does it Work? Definition and Types.

Outsourcing Definition and Types

Each company is created around a specific field or skill. Around each expert, support profiles are added in order to meet the current needs of the business (HR, marketing, accounting, logistics, etc.): what does outsourcing have to do with it? Despite all the talent that can be brought together in a company to make the most of its expertise, some internal needs can be met outside the company. 

What is outsourcing ?

Outsourcing is a term of English origin, this work practice has been in place since the early glory days of Taylorism. It was originally a human resource practice and a recruitment model that has gained popularity in recent years and affected several sectors. The concept is simple: one company hires another to provide staff, rather than hiring the staff directly. In other words, the employees are legally hired by the company providing the service, not by the company they are subcontracting too.

Modern Definition of Outsourcing

Outsourcing is a management strategy that consists in delegating individual services, sub-areas, business processes, or certain administrative activities for certain reasons to an external service provider. This targeted use of subcontractors allows the company to outsource part of its activity and to focus on its core business. A simple example of outsourcing in a company concerns the subcontracting of activities that are not related to the core business of the company such as: customer relationship management, administrative management, HR management, secretarial work, and various other functions.

Outsourcing is a practice that adds value to the company if it does not have the internal resources or does not wish to consolidate certain support missions in order to focus on its business.

Types of outsourcing

Types of outsourcing can be classified in different ways. In the classification of outsourcing tasks, these can be:

Offshore outsourcing

Offshore outsourcing is also known as Business Process Outsourcing (BPO), it is a process that refers to outsourcing services from a geographically distant provider.  

Today, it has become a common practice that allows large, medium and small companies to gain services and skills that are quite expensive in their own country due to taxes and/or labor cost.
It also allows your company to refocus on its true core business, reduce costs and improve the efficiency of your services. In short, these are all reasons why a plethora of companies today decide to resort to offshore outsourcing.
As an example, at Pentabell, our international recruitment company, we offer various services, and we have various offices located in different countries.

The reason why companies choose Pentabell:

Significant cost savings

For a long time cost rationalization has been a necessity in addition to constant innovation to better meet the increasingly precise and urgent needs of clients.

More flexible working hours

Thanks to outsourcing, the hours of action are much more extended. This approach improves the speed of execution and productivity of your projects. 
In an industry where fierce competition reigns, and where every word counts and wasting time is a failure, Pentabell offers optimized solutions and innovative services to meet your expectations.

Nearshore outsourcing

It is a process that consists in entrusting the secondary activities of one’s company to service providers located in a neighboring or border country, in the same time zone and in a similar cultural, historical and linguistic framework. This form of outsourcing is aimed at companies looking for a solution for a fast productivity, but particularly closer and meeting certain criteria:  

  • Reduced costs, but similar quality.
  • Similar project management.
  • Similar or close time zones.
  • Perfect cultural understanding.

Onshore outsourcing

Onshore outsourcing is the process of using a service provider located in the same country as the client company. It is a type of outsourcing within its own country. As an example, a company based in France using an external service provider located in France is an onshore outsourcing. Generally, administrative services are delegated to a local company as well as production.

Onshore outsourcing responds to issues such as:

  • Avoiding communication problems.
  • Easier to find a workforce.
  • Protection of intellectual property.
  • A wider network that facilitates the choice of the right provider.

Reasons for outsourcing

Economies of scale and cost reduction are one of the primary motivations of corporate decision makers. However, they are not the only ones to explain the choice of this type of strategy.
The optimization of the company’s global performance and the access to specific competencies are equally important tools. In fact, in addition to the savings made or assumed, companies aim to reach a level of excellence that is more or less difficult to achieve by relying solely on in-house skills.

Types of Outsourcing Services

outsourcing skills

Engineering process outsourcing (EPO)

This is when an outside team is given responsibility for particular engineering tasks. It might include auto manufacturers.

Information technology outsourcing (ITO)

Information technology is a critical aspect of doing business today. With more and more consumers doing business online, IT outsourcing makes sense.
IT outsourcing is when a company entrusts an external provider with the complete management of its information system. It takes care of the client’s infrastructure, applications and data in its own hosting platforms. IT outsourcing extends to one or more fields (global /partial outsourcing, applicative, exploitation…).

Knowledge process outsourcing (KPO)

Knowledge Process Outsourcing (KPO) is the outsourcing of knowledge-based work to qualified experts who usually have advanced degrees and expertise in a particular field, it’s an outsourcing of critical business activities related to information. 

This work can be performed either by another company, or by workers of a subsidiary of the company itself, this subsidiary can be located in the same country or in an offshore location to save costs or other resources.

Generally, companies resort to this type of outsourcing when they lack qualified professionals and when they are looking for specialized knowledge and expertise, it is a way to simultaneously benefit from a highly qualified workforce at lower cost.

Legal process outsourcing (LPO)

In most cases, SMEs do not have an internal legal department that allows them to solve the legal problems they encounter on a daily basis (collection of unpaid invoices, legal studies, pre-litigation and litigation management of commercial relations, etc.). Add to this the economic crisis, several companies have decided to outsource part of their legal functions, which has led to an evolution of their business model and organization. 

Recruitment process outsourcing (RPO)

The “RPO” refers to the outsourcing of the recruitment function, a client company entrusts an external service provider, specialized in the field like Pentabell, with the management of a part or all of the recruitment process. It is then up to the service provider carrying out the RPO to mobilize the human, logistical and computer resources necessary for the successful completion of the recruitment missions entrusted to them.
Examples of recruitment process outsourcing:

  • Consulting and Strategy
  • Recruitment Process Optimization
  • Talent pool development
  • Screening and Interviewing
  • Job offer management
  • Hiring and post-hiring.

Human resources outsourcing (RHO)

HRO, or human resources outsourcing, means that a third party is employed to perform all or a part of a company’s HR functions. These arrangements differ from a company to another, HR outsourcing can encompass:

  • Payroll and compensation management.
  • Employee benefits and services.
  • Recruitment and onboarding.
  • Orientation and job evaluation.
  • Staff training and evaluation.

Business Process Outsourcing (BPO)

Business process outsourcing (BPO) is the practice of outsourcing the operations and functions of a specific business to a third-party service provider.

Benefits of outsourcing

Cost savings

outsourcing costs savingsWho doesn’t complain about costs? This is one of the great challenges of most companies, the expenses for the purchase of equipment and moving are very expensive. In some cases, outsourcing is the best alternative to get around this kind of difficulty, because these expenses are passed on to the service provider. It also helps to reduce the costs related to hiring: search for candidates, integration, training, equipment, location, social charges.

Focus on core competencies

Companies are always on the lookout for performance and optimization. Trade and economic changes that are taking place faster than ever require a responsive and highly specialized structure.

Less strategic functionalities are increasingly transferred to external service providers to let internal teams concentrate on their core business and delegate secondary tasks to other operators.

Staffing flexibility

Outsourcing offers more opportunities than ever for companies to gain agility and efficiency by adding additional resources when needed.

For example, when it is difficult to find temporary staff to support the accounting department during tax periods, outsourcing provides additional resources at a consistent rate for a set period of time. Working with the same firms or subcontractors every time provides consistency in addition to flexibility.

Improved quality

An outsourcing operation is generally carried out with specialists. This ensures that the quality of the services rendered, such as secretarial services, customer relations or teleprospecting, are of good quality. The selected service providers bring with them the newest market practices, as well as the latest innovations in the sector.

Better operation management

OutsourcingOutsourced activities are deployed to service providers who are constantly in a competitive market, forcing them to strive for competitiveness, quality and service optimization. The client is able to put aside the rigidity and routine that often corrupt internal hierarchical systems, and instead benefit from more dynamic and adaptive contractual collaborations.

At Pentabell, our extensive expertise in the field of recruitment has enabled us to work with internationally renowned companies who were looking for recruitment outsourcing solutions. Why not you?

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