What is Outsourcing? Definitions, Best Practices, Challenges, and Advice

Nowadays, outsourcing is becoming a more and more popular business practice implemented in various spheres (and IT in particular). It is important to understand the notion of this business initiative, as well as consider its pros and cons, to succeed in outsourcing. 

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What is Outsourcing

Outsourcing implies a specific business practice based upon providing various services by the hired company. Thus, it is the collaboration between companies in terms of an agreement – due to which the outsourcing firm is responsible for the project or arranged activity. Outsource initiatives can be applied in various spheres, but it is more common for IT. As for the IT sphere, outsourcing involves a wide range of procedures, including software development, QA testing, network services, and so on.     

There are also several types of outsourcing, depending on the destination of the outsourcing company. Several options are possible in this case:

• Onshore – outsourcing services within one country;
• Nearshore – outsourcing initiatives to a country situated within the same time zone/ bordering country;
• Offshore – in case of outsourcing IT services to a remote country.

However, it’s important not to confuse the terms offshoring and offshore outsourcing, as far as offshoring can also imply an independent business process. In case of some misunderstandings, visit the Alcor group website to find out more detailed information about the peculiar features of offshoring and outsourcing.

Best Practices

Outsourcing is quite a beneficial business model, which is why it’s so popular in the sphere of IT. The primary benefit refers to the opportunity to save costs due to lower labor rates. 

There are several pros of outsourcing:

• lower costs;
• access to multiple skillful workers and resources;
• opportunity to implement innovation, as well as intellectual resources of the other company;
• variable capacity;
• increased efficiency;
• increased focus on strategy.

There is a need to consider several practices to increase the effectiveness of an outsourcing initiative. Firstly, the analysis of competency and execution methodology is required to make the right choice of the potential provider.

Secondly, the partnership should focus on the mutually profitable terms and the advancement of the two parties of the agreement or contract.

Thirdly, this business practice requires adherence to the structure, involving the size of the project, timelines, key stakeholders, owners, overall budget, strategy, and key KPIs. Fourthly, it is crucial to consider effective data security and management.

Finally, managing the outsourced project should consider the level of risk and find the best practice (to avoid challenges).       

Challenges and Advice

Undoubtedly, any of the business activities predispose a certain level of risks and possible challenges that can affect project execution. Therefore, the drawbacks of outsourcing include:

• lack of control over the project;
• lower quality of the product/service than expected;
• challenges for the daily workflow of the company;
• communication issues (due to different time zones or language-and-cultural barriers).  

As is mentioned above, it’s essential to adhere to several practices that can minimize the risk of failure (and help overcome challenges). The best advice to succeed in this business practice is to plan everything for creating an effective strategy. Even though it’s impossible to predict everything, there will be a strategy on how to react to possible challenges.

What is more, outsourcing requires a well-planned and clear goal, which enhances the chance for succeeding. Consequently, the appropriate project execution methodology is vital to guarantee the effectiveness and positive outcomes of the outsourcing initiative.           

Conclusion

To summarize, outsourcing is one of the widely-used business practices. Regardless of the variety of benefits based mainly on cost-saving, it’s also essential to consider possible challenges and risks. The effective strategy, clear-defined goals, data security, management, and appropriate execution methodology are the key factors to consider before choosing the potential outsourcing provider/partner. Hope that this information will be helpful in finding the best options for your business.