Outsourcing. what is it and how is it applied

INTRODUCTION

The objective of this work is to show a little more about what Outsourcing or Subcontracting is about (as this tool is usually called). It has been carried out for several years, but recently the subject has become known in the market because in our country it is being implanted in the business world. This modality has become increasingly attractive for entrepreneurs because they faced a labor scheme that reduced the profits of their companies, and this term is also used to describe a phenomenon that is spreading to the entire industry. Possibly it is part of a broader movement of society to shape a more productive and less wasteful world, posing delicate human relations challenges to management,since it can affect any employee and any manager who is not within the so-called “competitive advantages”.

Outsourcing is increasingly the common answer to the question that entrepreneurs ask themselves to provide better service to customers: make or buy? Outsourcing, combined with other techniques, is creating a totally new sophisticated environment in the customer-supplier relationship. Through this relationship, it is sought that there is an intense cooperation between the client and the supplier in which the suppliers adopt the same systems as the clients, in order to provide a better working relationship.

1.HISTORY

The translation into Spanish of the English neologism outsourcing comes to be the outsourcing of certain functional areas (not just computer science). Therefore, applied in general, it is not a new concept since it responds to the act by which an organization hires a third party to carry out work in which it is specialized, with the aim of reducing costs and / or avoiding organization the acquisition of its own infrastructure that allows the correct execution of the work.

Outsourcing is a practice that dates from the beginning of the Modern Era. This concept is not new in Latin America, as many competitive companies use it as a business strategy.

Delegating responsibilities and commitments that are not inherent to the essence of the business has been a constant in organizations. At the beginning of the post-industrial era, competition begins in global markets, and it is then that companies decide that others assume responsibilities, because their service capacity did not seem sufficient to accompany growth strategies.

Today there is talk of going back to the beginning and retaking these concepts under the name of Process Reengineering. The reality is that outsourcing has always been done, but with a probably wrong conception.

It is necessary to try to make the best possible use of a program of this nature and to add value to obtain an effective solution to business processes.

Despite not being a common practice among Latin American companies, in countries like Venezuela, which have experienced a very strong economic crisis and are now experiencing radical changes due to socio-economic pressures, we have formed a “launching pad” so that This type of external services will be carried out, since for many companies reducing costs and increasing productivity became the difference between success and failure. In fact, several companies that provided this service achieved efficiency without having to go through some stages, since the crisis helped in the sense that there was no other way to adapt to what the market and customers needed.

2. WHAT IS OUTSOURCING? DEFINITION, IMPORTANCE AND APPLICATION

Outsourcing or Outsourcing (also called subcontracting) is an innovative management technique, which consists of the transfer to third parties of certain complementary processes that are not part of the main line of the business, allowing the concentration of efforts on essential activities in order to obtain competitiveness and tangible results.

This technique is based on a management process that involves structural changes in the company in fundamental aspects such as culture, procedures, systems, controls and technology, the objective of which is to obtain better results by concentrating all the efforts and energy of the company in the main activity.

We can also define it as the outsourcing of services that seeks to streamline and economize production processes for the efficient fulfillment of the social objectives of the institutions, so that companies focus on what is their own.

This outsourcing responds perfectly to the popular aphorism “shoemaker to your shoes”, it has come under the name outsourcing, which means in practice finding new suppliers and new ways of ensuring the delivery of raw materials, articles, components and services.

Outsourcing is the action of going to an outside agency to operate a function that was previously carried out within the company, which ultimately hires a service or final product without having any responsibility in the administration or management of the provision of the service, which acts with full autonomy and independence to serve various users.

Outsourcing also implies promoting the opening of new companies with labor supply opportunities, somewhat restricting the social impact.

The importance of outsourcing lies in the fact that it aims to concentrate the company's efforts on the main activities of the business line. In this way, it is intended to provide greater added value for customers and products through agility and opportunity in the management of transferred processes, a reduction in processing times and even, in most cases, a reduction in costs and personnel., as well as a potentialization of human talents.

3. CONCEPTS AND BASIC FUNCTIONALITIES

Contract

It is a legal document that includes the scope and characteristics of the outsourcing service. The outsourcing contract must define the following aspects:

Its duration The conditions for the transfer of assets (both economic and otherwise) referred to the initial moment of the agreement between the Administration and the contractor The conditions for the management of the IS to be carried out during the contract (level of The conditions of recovery of the management of the IS once the contract has ended Intellectual property, especially if the responsibility for the development of applications is transferred to the provider The conditions provided for the termination of the contract prior to the date of its planned completion.

Service level

The service level defines the scope of the service (operation, maintenance, development, etc.), for specific information systems and the exact way to carry it out. It is one of the most important points of an outsourcing contract and must be easily measurable. For the establishment of the level of service, it is usual to jointly carry out, between the contracting organization and the outsourcing company, the following activities:

Feasibility analysis that defines the scope of application. Detailed analysis that meticulously determines each and every one of the specific commitments that will be contracted by both parties.

Assets

It is the set of computer resources that are the property of the contracting organization and that are susceptible to be transferred to the company that provides the outsourcing service and even later be recovered. These assets can be classified into:

Physical: correspond to the physical equipment of the organization Logical: correspond to the basic logical equipment Application: correspond to the existing application, both custom-made and commercial Information: correspond to the data contained in the SI Human: correspond to transfer personnel, which are outside the scope of this guide.

Cost transformation

This concept commonly encompasses the fact that outsourcing modifies accounting concepts related to IT management. Resource costs are transformed into service costs, fixed costs into variable costs, and investments in expenses, assets disappearing. This is possible, among other reasons, thanks to:

The fragmentation of the service into basic units (payroll, transaction, report, etc.) The independent and fixed pricing of each of these units The payment of the service according to the actual provision of the service based on the units performed.

Payment plan

Given the peculiarities of the outsourcing service, the payment plan establishes the way in which the service will be remunerated (monthly, when certain milestones are met, etc.), taking into account that each payment may have a fixed cost component and another variable, depending on the level of service. Thus, in contracts the following types of payments can be established:

Fixed price Variable price, per unit of use Mixed price (fixed part and variable part).

Scheduled departures

The outsourcing contract must provide the necessary mechanisms so that upon its termination the transfer of assets and the service is possible. This concept is related to the termination of the contract, since it defines:

The specific moments of time (one year after the signing, two, etc.) in which it may be terminated The possibility of early cancellation of the contract with its corresponding financial compensation The notice periods for early termination of the These scheduled departures must be reflected in any of the clauses of the contract.

Facilities management

It is the service that aims to carry out the tasks of a Data Processing Center (DPC) of an organization, consisting basically of:

IS operation, network management, technical support.

This service can be provided remotely from the facilities of the contracted company or those of the contracting organization, and the resources to be used may belong to the contracted company, the contracting organization or the supplier of the logical or physical equipment used. The concept of facilities management is generally confused with outsourcing, although the latter is broader and encompasses it.

Systems management

It is a service of greater scope than that of facilities management consisting of:

IS operation, network management, technical support, application maintenance.

System integration

It is a service that contemplates the development and start-up of an organization's applications and whose scope includes all tasks related to an IS development project:

Design.Codification.Testing.User training.Is implementation.This service, due to its specific peculiarities, is more difficult to define and size than the previous two.

Right-sourcing

This term is used to define the optimal solution in the choice of the company to which the outsourcing service is assigned. As outsourcing includes very different services, the optimal choice would possibly mean not awarding the contract to a single company but to several, so that each one performs the part of the service for which it is most effective. However, in practice it is not usually done in this way, but it is decided to award the contract to a single company.

En casa

This concept is applied when the outsourcing service occurs in the facilities of the organization contracting the service.

Off-site

Unlike the previous one, this concept is applied when the outsourcing service takes place in the facilities of the company that provides this service.

Co-sourcing

Some experts predict that the companies that will obtain the greatest benefits in the year 2000 from the outsourcing business will be those that offer some added value to their clients. Proof of this can be considered a form of «outsourcing» that has emerged recently, called co-sourcing, which responds to a further evolution of the aforementioned service. With this, what is intended is that the company providing the service share risks with the one that hired it.

Out-tasking

An outsourcing modality more focused on specific tasks. Thus, it is observed how, in some cases, outsourcing transits towards:

Small-scale contracts. Fewer functions are entrusted to the service provider. Services are more specialized.

4. CHARACTERISTICS

4.1 RELATING TO THE CONTRACT BETWEEN THE PARTIES

Its development is complex, since it must clearly establish the responsibilities of both parties in any aspect, not only of the current level of service but also of the future level of service.

It usually lasts for several years. In the private sector, it lasts no less than 5 or 7 years, a period of 10 years being usual.

One of the most important aspects of the contract is the definition of its termination (termination), the establishment of scheduled departures before the agreed deadline, as well as the notice periods in the event of a service reversal.

Along with financial concepts, personnel transfer criteria should be established throughout the evaluation process (if they exist).

The scope of the contract is tailored, that is, it may be as broad as the contracting parties wish.

It must be flexible so that the Administration can change the requirements of the service and the provider can change the means with which it provides it. While an outsourcing contract is signed to be valid for years, the technology requirements are constantly evolving.

4.2. RELATED TO THE OUTSOURCING COMPANY

It is a strategic decision for the organization, since it cedes all or part of its assets to the outsourcing company.

It allows access to new technologies and focus on carrying out activities of greater value to the organization.

It allows the organization to achieve a higher level of competitiveness without making investments in technological equipment or in training its own IT staff.

At an accounting level, it transforms the concepts of fixed costs into variable costs and investments in expenses, disappearing assets. Operating costs are lower and decisions to invest in infrastructure are avoided.

Acquires a very important commitment to the organization that hires it, since it will depend on it to provide an adequate level of service.

The service provided must be flexible enough to adapt to business, organizational or functional changes in the organization, as well as to the technological environment.

5. OBJECTIVES OF THE OUTSOURCING

The main objectives that can be achieved by hiring an outsourcing service are the following:

Optimization and adaptation of costs related to management, based on real needs. Elimination of risks due to technological obsolescence. Concentration on the organization's own activity.

6. CONDITIONAL FACTORS FOR OUTSOURCING

We can consider, in a broad and general way, a series of factors that condition the implementation of outsourcing in companies:

6.1. OUTCOMING AND THE STRATEGIC ENVIRONMENT

The natural need for broad knowledge by officials about the new management system implies the dissemination throughout the organization of the strategy, vision, mission, objectives and goals of the company for the correct application of the outsourcing process.

Likewise, the objectives, policies and guidelines must be reviewed so that the company, in case of conflict, is able to establish a relationship of trust between all hierarchical levels and jobs.

6.2. OUTCOMING AND THE ORGANIZATIONAL ENVIRONMENT

Due to the changes in the functional structure, there are significant alterations in the physical space that the organization occupies, variations in functional activity and in the delegation of authority, and changes in departmental and general organization charts.

Therefore, there are also alterations in the rules, systems and operational methods, which must be frequently reviewed to support the changes produced by outsourcing.

Consequently, the organization will be immersed in a process of adaptation to the new internal control of management information systems, through greater support and qualification of data for decision-making.

6.3. OUTCOMING AND THE ECONOMIC ENVIRONMENT

From this perspective, outsourcing requires an adaptation of the internal cost structure to this new system, defining its situations at an accounting and operational level. Thus, the data obtained through the cost system of outsourced activities in relation to the costs of internal activities.

From the implementation of outsourcing, a continuous review of the costs of the production, distribution, marketing processes and, in general, of the costs of many internal administrative activities is needed, as they have a direct impact on the administrative structure - operational of the company.

Similarly, there must be an environment aimed at reviewing the prices and rates of the products or services of the organization, considering the participation and influence, direct or indirect, of the outsourced activities for the final determination of the same.

In many cases, depending on the outsourced areas and depending on the management flexibility implemented in them, there may be significant variations in the planning of the level of investments in assets by the company or in the planning of the performance of existing assets.

6.4. OUTSOURCING AND THE SOCIAL ENVIRONMENT

The special circumstances of the political and social moment lead us to talk about employment. This topic should be analyzed taking into account two aspects:

6.4.1. OPENING OF NEW BUSINESSES

In this sense, the international examples of outsourcing, some of which will be presented later, lead us to think about the rapid formation of new companies in various market segments in the service sector.

6.4.2. FUNCTION REVIEW

With the implementation of outsourcing, the transformation of functional structures is inevitable in companies. It is up to senior management, based on the strategic vision, to define the internal consequences of this process, addressing:

The social aspect of dismissals when they occur, trying to facilitate the process together with the officials, and always trying, as far as possible, through negotiations with the provider of the services to be hired, foster care, in a partial way or total, of these officials who will become collaborators of the new company.

The functional internal movement will teach the administrator the possibility of taking advantage of the available workforce in outsourced areas. This situation is made easier, since former employees know the company, its culture and philosophy. This approach is extremely important because, with the implementation of outsourcing, the business tendency is to lay off employees, which at a certain point causes the company to emphasize the areas that make up the main activities of the business.

6.5. OUTSOURCING AND THE POLITICAL ENVIRONMENT

The Venezuelan government, whether municipal or state, could consider outsourcing as an appropriate way to proceed in relation to strategic and operational changes in public bodies.

We can say that the stabilization programs of the economy, the privatization of state companies, the opening of the economy and the reduction of the bureaucracy reflect state intentions that can have favorable results through outsourcing.

6.6. THIRD PARTY AND THE LEGAL LEGAL ENVIRONMENT

In Venezuela there is no law that prohibits or regulates the application of outsourcing, however, due to the laws on job stability, outsourcing may have obstacles, due to the cost involved in firing employees from the areas to be outsourced.

7. REASONS FOR SUBCONTRACTING AND FOR NOT SUBCONTRACTING

A. Reasons for outsourcing:

Achieve effectiveness by focusing on what the company does best Increase flexibility to achieve change according to business conditions, demand for products and / or services and technology Improve organizational performance through higher productivity, better quality, more reliable and on-time deliveries, faster cycle times, improved resource utilization, higher availability and higher performance Transfer the cost of employees (including benefits that are granted by law) and management expenses to the supplier Convert fixed costs into variable costs Reduce investments in equipment, inventories, personnel, among others, to use those resources for other purposes Gain access to the market and business opportunities through the supplier network.Expand operations during periods in which such expansion could not be financed Receive innovative ideas to improve business, products, services, among others Improve credibility and corporate image through the association of large suppliers.

B. Reasons not to outsource:

Maintain jobs to prevent loyalty of employees who remain in the company from lowering, maintaining commitment to the community Low morale for employees in general (not just for those who were outsourced) Losing control over The supplier Losing the company philosophy Existential uncertainty Relying on suppliers Losing confidentiality Fear that contractors will expand within the company

8. WHAT CAN AND CANNOT BE SUB-CONTRACTED

A. Activities that can be outsourced:

Those that are resource intensive - current expenses or capital investment Relatively independent areas Specialized services and other support services Those subject to a rapidly changing market and where it is costly to recruit, train and retain staff Those with technology rapidly changing, requiring a large investment.

B. Activities that are not outsourced:

Strategy. Corporate finance. Control of suppliers. Quality. Environmental standards. Security. Satisfaction of market and regulatory requirements. The provision of administration and direction. The maintenance of competencies and control. Differentiation from competitors. The maintenance of one's own identity.

9. THE WAY TO OUTSIDE

9.1. THE OUTCOMING PROCESS

The application of outsourcing in companies must be done taking into account two very important points of view:

You must find a company that offers a service equal to or better than that which is run internally.

The service to be provided must be done in a timely manner, in the shortest time and with the highest possible quality.

These two aspects clearly determine, and in a simple way, a new positioning for contracted and contracting companies. According to the American Management Association (AMA), to implement strategic outsourcing the following process must be applied:

Transform the functional hierarchy of the organizational structure into a representation of the process of the roles that each employee fulfills in the company. With this, the rigid functional organization is transformed into a representation of the role process, that is, that employees perform a series of required activities and that these are coupled so that people from different departments can work together efficiently and effectively. Combine various processes in business units as a new organizational structure. Strategic business units are small businesses defined and established as units in a larger company, created in order to ensure the promotion and management of a certain product or service as if it were an independent business.Classify business units as an "essential" or "complementary" capability for the purpose of the company. Commit all complementary business units to an independent capacity development strategy. Define the specifications and opportunity for the purchase and sale of the products or services of complementary business units. It is about defining where the difference lies between the internal provider and the best options on the market Manage outsourcing initiatives through contracts with providers Continuously assess and implement additional changes by the corporate business unit network caused by strategic market or internal considerations.Commit all complementary business units to an independent capacity development strategy Define the specifications and opportunity for the purchase and sale of the products or services of the complementary business units. It is about defining where the difference lies between the internal provider and the best options on the market Manage outsourcing initiatives through contracts with providers Continuously assess and implement additional changes by the corporate business unit network caused by strategic market or internal considerations.Commit all complementary business units to an independent capacity development strategy Define the specifications and opportunity for the purchase and sale of the products or services of the complementary business units. It is about defining where the difference lies between the internal provider and the best options on the market Manage outsourcing initiatives through contracts with providers Continuously assess and implement additional changes by the corporate business unit network caused by strategic market or internal considerations.It is about defining where the difference lies between the internal provider and the best options on the market Manage outsourcing initiatives through contracts with providers Continuously assess and implement additional changes by the corporate business unit network caused by strategic market or internal considerations.It is about defining where the difference lies between the internal provider and the best options on the market Manage outsourcing initiatives through contracts with providers Continuously assess and implement additional changes by the corporate business unit network caused by strategic market or internal considerations.

9.2. PROJECT ORGANIZATION

An outsourcing project must include the active participation of officials from both the contracting company and the service provider companies.

In short, joint and daily work during the hiring, implementation and development of the entire project is essential for its success.

Basically you need to implement a work team that includes suitable members, who are in charge of approving, leading and executing the project. The work team must include the following members:

Executive Committee: Made up of the managers of the contracting company and contractor. The executive committee is in charge of approving the project. Project Management: Composed of a leading manager of the contracting company and a leading manager of the contracting company. The project management is the one that leads the process. Project team: Made up of professionals from the contracting and contractor companies. This team is the one that executes the project. The project team includes specialists previously selected by the contracting company, who will be in charge of organizational development while outsourcing is applied. The team of specialists, together with the project management, will be in charge of preparing the contract for the provision of services,and the executive committee will be in charge of giving the final approval.

9.3. CRITICAL PROJECT SUCCESS FACTORS

In order for an outsourcing project to be successful, special attention needs to be paid to a number of essential factors.

First, the participation and sponsorship of senior management are important as a source of ideas and the impetus for the project.

Second is the formation of an internal team with extensive knowledge of the processes and products so that their cost does not include functional deficiencies.

Third, the service provider must be targeted on the basis of a detailed selection of the same to promote effective outsourcing.

10. ADVANTAGES AND DISADVANTAGES OF SUBCONTRACTING.

A. Advantages:

The economic development of the productive sector Specialization by tasks based on the services provided The responsibility of the service contracting companies to establish adequate quality controls through criteria and evaluation systems established jointly with the providers of these services It is inevitable A new approach to the cost system to be able to clearly evaluate the decrease in costs in outsourced processes Greater training and professional development for employees within service providers, as well as technology transfers for company officials contracting companies and / or for contracting companies A reduction in waste The revaluation of human talents Agility in decisions is reinforced with outsourcing.Use of physical spaces and revaluation of installed resources (machinery, equipment, among others) to optimize use.

B. Disadvantages:

Loss of critical skills for the fulfillment of the business objective or development of skills that may incorrectly be classified as essential Loss of control over the quality of the contracted services If no market analysis of the service provider companies is carried out, Outsourcing can become the direct path to failure If the decision to outsource is not well founded within the company, the very idea of applying it could cause widespread chaos at all levels of the organization. They cannot be admitted when choosing an area to be outsourced. Not all employees who lost their position within the organization may be absorbed by service providers.

11. OUTSOURCING AS A RE-ENGINEERING TOOL

Organizations that are really prepared to go back to the beginning and think about the best way to produce, market and distribute a product or a service will be forced to ask what are the best ways to do it, and at the same time if they really need to have all the processes within their companies.

Reengineering offers companies the opportunity to consider outsourcing as one of the tools that they can use in the new process; although it is easier to write about reengineering than to put it into practice. The principles are sound and sound, but there are still few examples of spectacularly successful reengineering projects.

One of the reasons for this slow assimilation is internal resistance in organizations to this potentially enormous change. It means challenging powerful vested interests, who will find reasons not to make changes, at least for the moment or in their own areas. For the same reason, outsourcing can be an easier route than internal reengineering and can open this dead end. In fact, outsourcing providers or subcontractors will often achieve their benefits by reengineering a process to make it more efficient once the contract is awarded. New companies or new businesses will adopt outsourcing more easily than traditional organizations, as they have the opportunity to appropriately design their business processes, to be as efficient as possible,and not simply copying others in the industry.

12. METHODOLOGY TO ESTABLISH AN OUTSOURCING PROJECT

A practical methodology to establish an outsourcing project includes:

Combine technology, human resources and financial resources Analyze if the company is culturally, technically and managerially prepared to be subjected to an outsourcing process at a certain time Design an outsourcing program based on this analysis, establish schedules, needs and all the resources that are required to carry out the process Prepare for the implementation, and acquire the necessary resources so that it can be managed by remote control (via the Internet, for example)

12.1. CONVINCE OF THE NEED

Putting the administration of services that are vital to the company in the hands of others causes some suspicion; However, it cannot be denied that this streamlines actions in the daily performance of organizations.

«The current situation is that companies absorb the entire cost of the processes, which is transferred to the client via price; in addition to inefficiency, distraction of resources and little specialization. (Rodríguez Leonardo, 1997, September, p. 669).

12.2. IMPLEMENT OUTSOURCING

The outsourcing methodology is essentially the incorporation of good practice in managerial decision making. The decision to outsource needs to be subject to an appropriate administrative process and not simply made, as is the case with many other decisions, on financial or technical grounds.

The methodology includes the simple steps of evaluating, planning and executing a set of decisions.

This is not a recipe for how to proceed with regards to outsourcing, nor is it black magic revealed to one or two privileged professionals.

What this methodology will do is help you plan, help you set expectations, both within your organization and abroad, and point you to areas where you need specialized knowledge.

Therefore, this methodology should be viewed as a set of tools, which must be customized to meet the needs of the outsourcing project under consideration. This is a vital step and generally results in a more adequate overall plan, with a more directed effort by the project team.

12.3. STEPS OF THE METHODOLOGY

PHASE 0 BEGINNING OF THE PROJECT.

That makes? Identify the scope of what is being considered for outsourcing. Establish criteria, initial milestones, and go / stop factors for initial decisions. It allocates initial resources to "put the seed" of the project. How long? Two to four weeks Who participates? This phase is initiated by the executive manager or a board member sponsoring the feasibility study. What is delivered? A document that sets out the scope of the project and administrative issues. What is decided? Examine (or not) the strategic benefits.

PHASE 1 EVALUATION.

That makes? Examine the feasibility of outsourcing; defines the scope and boundaries of the project and reports to what extent the project will meet the established criteria. How long? Four to six weeks. Who participates? A small team led by the sponsor, at least one manager of a function (for example: finance or human resources), who is not personally affected by the result of the evaluation. What is delivered? A feasibility or other study. A decision about whether or not to proceed to the planning stage What is decided? Decision about whether to proceed or not.

PHASE 2 DETAILED PLANNING.

That makes? Establish the criteria for the tender, define the details for the requirements and prepare a short list of invitations for the contest. How long? Eight to ten weeks. Who participates? The team formed during phase 1, plus a purchasing representative (or supplies or contracts), the legal department and human resources, in case they are not represented. What is delivered? A plan for the tender process, including tender documentation, description of services, draft service level agreements, and a strategy for negotiations with suppliers. What is decided? Who is invited to retain, under what criteria and performance measures.

PHASE 3 CONTRACTING.

That makes? Select a preferred contractor as a result of a bidding process. Identify a backup provider - How long? From three to four months Who participates? The core team of the planning phase. May include external advisers. Potential contractors and their partners will participate. What is delivered? Invitation to compete. Service level agreements. The headings of the agreement. Contracts Plan for the transfer of the service to the subcontractor. What is decided? The award of the contract. To whom, for what service, for how long, with what measurement criteria.

PHASE 4 TRANSITION OF THE NEW SERVICE.

That makes? Establishes the procedures for the administration of the outsourced function. Transfer formal responsibility for operations. Transfer personnel and assets as agreed. How long? From two to three months. Who participates? The core team and the function manager of the outsourced function. Human resources, users, management and personnel of the supplier. What is delivered? A transition plan. Documentation of administration and review procedures. Handover of formal responsibility to the subcontractor. What is decided? Termination procedures. Service delivery date.

PHASE 5 ADMINISTRATION AND REVIEW.

That makes? Review the contract on a regular basis, comparing it against the agreed service levels. Raises negotiations to take into account changes and additional requirements. How long? From one to five years, depending on the length of the contract. It is normally three to five years. Who Participates? Contractor representative responsible for service delivery. Representative of the user function, responsible for the administration of the contract and the supplier. What is delivered? A managed service. Regular reviews. No surprises. What is decided? Annual verification of the validity of the original evaluation. Decision on the continuation of the contract.

13. EVALUATION OF ACTIVITIES FOR OUTSOURCING

A simple model determines which activities are considered areas of “responsibility”. This conflicts somewhat with current thinking on "process management and reengineering", since a critical aspect for successful process reengineering is the ability to assess processes that cross functional boundaries.

Non-core activities include:

Customer SupportSalesComputer TechnologyPropertiesHuman ResourcesEducation & TrainingFinanceManufacturingDevelopment

Finally in any comparison of this nature, cost is never what it seems; the true costs of purchasing services from a provider are best viewed as an iceberg, with the obvious costs being those above the waterline, perhaps just the tip. To demonstrate this iceberg let's look at:

Above the waterline

The price composed of:
- Materials Labor General Expenses Marginal

Below the waterline

The true cost of the relationship composed of:
- Guarantees Distribution Training Speed of response Inventory Taxes Development Consignment Tooling Awards Insurance Administration Transportation Quality levels

Among the Outsourcing figures we can highlight the so-called Associated Work Cooperatives (CTA), Associative Work Companies (EAT) and Independent Contractors (CI).

14. RELEVANT FACTORS IN THE CONTRACTING PROCESS

In the definition of the object of the contract and the requirements inherent to it, as well as in the evaluation and comparison of offers of the bidders, many factors and of a very diverse nature can intervene. Therefore, the approach of starting any outsourcing process in a staggered way and in independent phases is recommended to be able to measure the impact and correct any deviation.

Taking this approach into account when undertaking the hiring of an "outsourcing" service, the factors involved must be included within the specifications of the set of questionnaires available for this purpose:

Of the company. Economical. Private technicians.

However, as a guide, this section makes mention of those factors that, among the above, may intervene to a greater extent in the process of hiring an outsourcing service whose monitoring must be exhaustively carried out:

Transfer of equipment will be positively valued, where appropriate, that the outsourcing company accepts the assets of the Administration and the economic value that it proposes in terms of:

Physical equipment Logical equipment (non-applicative) Installations In the case of transfer of application logic equipment that is susceptible to reuse, the economic amount with which the outsourcing company compensates the Administration will be assessed. resources will be deducted from the cost of the service.

Flexibility will be valued positively, so that the outsourcing company commits to adapt as much as possible to changes regarding the agreed service level, in terms of:

Increase in the hours of use of the SI Variation of the periods of time that require a massive process capacity (24 hours a day) Increase and improvement of the equipment park, with respect to what has been agreed in the maintenance Technological update of the equipment logical (versions, new products, etc.) Variation of specifications in the development or maintenance of applications.

Reversibility. The concept of reversibility is applied at the end of the contract and refers to the possibility of recovering the assets and services assigned to the outsourcing company. This concept is applicable both at the end of the term of the contract and at the scheduled departures established. It will be positively valued that the outsourcing company considers this possibility of asset recovery, and especially that:

Plan the equipment buyback option. Propose an asset valuation method that stipulates the increase in the value of the assets for the duration of the service. These assets can be of three types: Improved assets (applications, new developments, etc.) Updated assets (physical equipment and maintenance applications). Assets trained (training of personnel in the new tools).

Experience in the public environment. The experience of the outsourcing company staff in other jobs with the Administration will be positively valued as long as it can be objectified. It will be especially interesting that these jobs are directly related to the services to be hired (development or maintenance of the applications on which previously worked, etc.). Security. All measures (procedural, physical and / or human resources, etc.) available to the outsourcing company to ensure the confidentiality, integrity and availability of the information will be positively valued. As an example, they can be cited:
- Security procedures related to the facilities where the physical equipment resides (for access, protection against fire, etc.). Periodical copying of information. Contingency (before disasters). Specific security devices: Control of access to the IS. Backup centers, etc.
Continuous investment in technology. The outsourcing company must have the vocation to be at the cutting edge of technology (the latest and most modern equipment) and with the best professionals (trained in these technologies). Therefore, factors that demonstrate this continuous investment in technology will be assessed, such as the following:

Have the latest versions of physical and logical equipment Quality and safety certifications from recognized organizations Number of courses carried out per year for retraining and training of personnel Coincidence in technological strategy with the administration, it will be considered positively that the technological strategies of the The organization and the outsourcing company coincide, that is, the environment and type of physical, logical and / or communications equipment are equivalent or are in the same line, especially with regard to the strategic orientation of Open Systems.

From all these aspects, ten key factors to take into account in the management of any “outsourcing” contract emerge, which are listed below:

Focus it on a final objective and not on a daily activity Identify cases of risk and possible problems and develop plans to solve them Develop transition plans in detail that allow the application of this "outsourcing" in the current structure of the company or organization, as well as its completion Clearly reflect the different performance measurement criteria for its application and periodic review Give priority importance to the human factor, particularly within the contracting company or body Ensure the effective transfer of knowledge between the contracting party and the company that offers its services Prepare and manage possible cases of conflict between the two Document all activities in detail Establish the appropriate monitoring infrastructure,communication and responsibilities, to ensure mutual agreement throughout the project. Keep the quality and cost of the service updated according to the market guidelines.

15. FUTURE OF OUTSOURCING

Whether or not outsourcing is part of a larger movement, there is no question that a world of scarce resources is dictating a reduction in managerial staff, a lean management; indeed, the morality of society itself may have already signaled the end of waste, inefficiency, and displays of opulence.

In this aspect, the outsourcing strategy is presented from the point of view of the largest company that needs to consider this option. For this tool to work in the future, it is necessary to provide a methodology that allows the difficult task of outsourcing to be carried out. In some cases this strategy must be examined by outsourcing providers (subcontractors), as these can also be revealing. However, it is difficult to separate the two, as both are twin halves of a dynamic process that is changing the business world.

Several recent studies reveal that outsourcing is growing, at the same time that service providers are expanding their range of offerings. All this implies a greater concentration on competitive advantages on the part of the proprietary organizations that are transferring this work to external providers, this trend could also be an indication that the industry is coming to terms with a more demanding environment and the need to maximize resources and reduce waste.

CONCLUSIONS AND RECOMMENDATIONS

CONCLUSIONS

By hiring an Outsourcing service, organizations can focus more on the main activity of their business.

Outsourcing should be done as long as the company is certain of obtaining the lowest cost and maximizing benefits.

Outsourcing occurs in a cooperative environment between two companies, that is, two organizations with different objectives and strategic approaches, merge to share the same ideal, serving the client and obtaining a greater benefit or utility.

In Venezuela, due to the labor legislation that exists in the country, it is common to find Outsourcing in large companies in the area of personnel contracts.

RECOMMENDATIONS

The approach of starting any outsourcing process in a staggered way and in independent phases is recommended in order to be able to measure the impact and correct any deviation.

It is advisable to maintain continuous contact with the company in which the service has been contracted, continuously evaluating the operation of the area in which the service is provided, and continually comparing the results, to verify if it is meeting the objectives initially set.

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