What Is Outsourcing | Part 1

What Is Outsourcing | Part 1

What Is Outsourcing?

Outsourcing is the transfer of all or part of a function of an organization (company or government) to an external partner. It is very often subcontracting activities deemed non-essential and non-strategic for a company, it is those who are producing less revenue. This is a strategic management tool which is reflected in the restructuring of a company within its sphere of activities, core competencies and the heart of business (also called the core business).

Outsourcing differs from the simple provision of external services, and simple subcontracting, to the extent that there are:

  • Flying close by the donor company to order;
  • Commitment of the external provider.

The term outsourcing means for its outsourcing services offered by software houses. The reverse process, that is to say the recovery to the company’s internal activities outsourced is sometimes observed. This is called re-internalization, which is confused with the relocation or back-sourcing.

Economic and legal approaches to outsourcing

Outsourcing the economic point of view is an agreement between an organization and a third for the management, operation, management and continuous improvement:

  • Entire functions of the organization (e.g., computer, cleaning, human resources, payroll / income, billing, accounting, marketing and communication);
  • Infrastructure (e.g., information system, security systems, telecommunications networks);
  • Business processes (e.g., exploitation of raw materials, industrial production, operation of a telecommunications network, storage, logistics, transportation) upstream or downstream of the organization.

This process allows the organization that outsources to refocus on its core specialties, and finally its value.

Outsourcing is in legal terms on a fixed term contract involving the transfer of all or part of the function, service and / or infrastructure or business process of the organization between the organization and owner operator. The terms of return or reversibility are the key to successful outsourcing.

This contract may include a transfer of assets and / or staff. The client focuses on the definition of outcomes, leaving the external provider is responsible to deliver. Outsourcing affects both public and private organizations. It is by no means confined to business.

More and more governments are seeking to turn to gauge the interest of such approaches including the sovereign functions, such as defending the example of recent discussions held in France for this important area of public procurement. It’s now a question of administrative policy arises.

For methods of managing public services, be they economic or social, outsourcing is made when the method of management of a service is no longer handled internally (the concept of “in-house services”) under the responsibility of public authority.

This is known as managed services, concessions and more generally of public-private or in a more Anglo-Saxon BOT. The logic of “core business” is now clearly claimed by the French Government on behalf of the general revision of public policies (or RGPP). Eric Woerth, Minister of Budget Reform on behalf of the French government recalled 04/08/2008 “in all ministries, the reforms identified the opportunity to pool certain support tasks (back office) and to develop the outsourcing of functions that are not in the heart of the business of the state.

Approach to the idea of outsourcing contract

Validation of the economic model

Utilizing an outsourcing solution is similar to the adoption of any new process. Initial steps include the establishment of a policy, the definition of a list of functions could be outsourced and the selection of suppliers. It may also be necessary to conduct a cost-benefit analysis to understand the value of the outsourcing model and an analysis of risks (risk management).

A growing number of companies are studying the outsourcing model to see if they should follow as a fad is not allowed. It may be worthwhile to do a pilot project for an important but not fundamental to evaluate outsourcing before expanding to an increasing number of processes.

Some firms specialize in strategic studies regularly publish market statistics and trends of outsourcing in sectors such useful information can be found responsible for such an approach in a company to step back and mature decision.

Confirmation of the model in detail the contract

The implementation from a service provider is a complex process that is studied seriously and gives rise in general after feasibility studies, including service indicators and measurable matrix reciprocal responsibilities, drafting a services agreement.

From the perspective of technology contracts, legal advice is essential to examine the critical points of the contract include:

  • The definition of service expected by the state of the art technical specifications objectively measurable and practical to be fully understood;
  • Defining the level (s) Performance (s) that will determine the penalty and bonus in terms of remuneration of the provider;
  • The responsibility of the parties and covers risk transfer (insurance, etc.) according to the schedule risks applied to the outsourcing operation;
  • The procedure for transfer of the outsourced activity that will include audits and inventories prior validated;
  • The arrangements for continuity of service and performance (in case of progressive change, brutal activity even in crisis);
  • The arrangements for the implementation of the survivor clause of outsourcing (back-sourcing);
  • Procedures to monitor the outsourcing (monitoring, audits).

Finally, in terms of project management and while the contract is now signed after a competitive tender which negotiations take time, any successful outsourcing will require internal and external communication perfectly prepared and implemented by the co-contractors for avoid deadlocks always possible stakeholders (other suppliers, customers, employees, unions, third), particularly in cases of total or partial relocation.