As is well known, within organizations there are different processes that are developed in different areas of companies in order for them to achieve the objectives that are set.
The changes that organizations go through are factors that also determine whether or not they achieve their objectives, as well as the resources they use to carry out each of their activities.
In current times, globalization has made organizations seek their survival through the search for new markets, reducing costs and competitiveness.
SMEs and why not large companies have sought new methods to help them achieve their goals, making use of the tools at their disposal. Some of the companies need to focus their attention on the processes that are most important, that is, they invest more resources in the areas they consider most relevant for the development of the organization. This means that some of the areas with little attention go to the hands of external agents to take care of the activities of those areas.
On the other hand, companies seek to reduce costs and increase their levels of competitiveness in some of their processes, looking for external professional personnel to facilitate the execution of activities and, as they are agents from outside the organization, the costs that are generated are lower than those that can be had by using internal resources.
This technique that allows the entry of external personnel to the organizations to carry out the tasks that the company should carry out is called “outsourcing”.
Definition.
Outsourcing has different definitions are the authors, these can be the following:
- Outsourcing: it is the incorporation into the organization of the competences that it has not selected as priority or main, making use of other companies to carry them out (Business School, 2002).
Other definitions are as follows:
- Outsourcing: process by which organizations contract or subcontract all or part of the processes, in the production areas or in some administrative cases, which the company previously carried out (Uribe-Echeverria & Rubert Adelantado, 2001).
- Outsourcing: economic process in which an organization takes the resources destined to carry out certain activities and entrusts them to a specialized external company which is in charge of carrying them out. (Martínez Gómez, 2012)
Outsourcing is a technique that companies use so that other companies carry out activities that are considered “less” important within the organization, so that the company that hires the services can focus on using its resources in priority activities and at the same time reduce the costs generated by carrying out these activities using the organization's own resources.
Outsourcing.
Today's managers who run their own organizations face a host of changes, including:
- Globalize activities. Grow without having to use more resources (more capital). Reduce costs. Understand consumer tastes. The need to respond to threats and especially opportunities. Aging workforce
Outsourcing, called in Spanish as subcontracting, outsourcing or outsourcing (although the latter differ somewhat from the concept of outsourcing), is a technique that organizations use to obtain external suppliers, which carry out activities that the company itself carried out internally or in failing that, they serve as a plus to internal processes.
Maintaining the main functions within the organization using resources that are proprietary to the company and hiring external services to carry out the support or secondary activities, is what is known as strategic outsourcing, which is considered as a means by the which to maintain and increase competitiveness. A very simple example can be the following: a company A makes use of the services or inputs of a company B, this being foreign, national, related or not to company A.
What identifies outsourcing as a practice carried out by an organization is that a third party performs one or some functions that were previously characteristic of the organization, which for various reasons decides to stop performing them, for which it transfers them to a third party.
The construction of the word outsourcing is made up of the English words out (outside) and source (source). Hence, external sources are used, in this case, companies outside the organization that carries out the subcontracting.
Many confuse subcontracting (outsourcing) with the hiring of services from an external company, where the former is exchanged of information, coordination and above all trust, even assignments of business responsibility are made, although these are minimal; On the other hand, in the hiring, the company that hires the service only determines which is the job it wishes to acquire and the contractor limits itself to fulfilling it in a timely manner.
There are several areas where outsourcing is carried out, these can be: human resources, computer services, accounting, warehouse management or technical support which many times includes call centers, likewise, they can also be subcontract companies that carry out engineering and manufacturing activities.
It is correct to mention that outsourcing is applied in activities that are not the main ones for the organization that subcontracts to another company.
For example, the so-called call centers, which are the places where telephone assistance is provided in a personal way to customers. This assistance can be made from external countries where the client is originally from, such countries can be India, Pakistan, Uruguay, the Philippines, among others. Outsourcing this external service provides a competitive advantage to organizations, which seek to reduce costs in the customer service area, since it is much cheaper than having an internal department that takes charge of said activity (Bohon Devars, 2009).
Reasons to use outsourcing.
Previously, outsourcing was considered by many as the means by which they only wanted to reduce costs, but today it has proven to be a very useful technique for the growth of companies for reasons such as the following:
- Reduction and control of expenses (in certain cases it is cheaper to subcontract to third parties that carry out certain activities, than for the same organization to carry them out by itself). Concentration on the areas of the organization that serve as a pillar for it, which are their raison d'être and also appropriately dispose of the capital of the company, due to the reduction of this, in functions not linked to the raison d'être of the company Have personnel with a high professional capacity Allocate mostly resources and investments to the main objectives of the organization Greater efficiency Instant access to technology Improve response times Pass the challenge of innovation and technological evolution to the service provider (Besil Bardawil, Pliego Rosique, & Madrigal Hinojosa, 2013)
The aforementioned reasons allow the organization to focus mostly on the business matters that it considers and are of importance, while the outsourced company performs the activities that are somewhat more secondary.
Outsourcing characteristics.
Outsourcing is characterized by having the following elements:
- Outsourcing is given through a collaboration contract between the company that hires the services and the company that offers them. Outsourcing is a management tool that can transform the functioning of the organization, by making it spend more time and resources the strategic factors or key points of the company and less to the administrative aspects. The amount of work that before was carried out with internal personnel (which is usually a lot), happens to be carried out by fewer personnel; With this, the company that hires (client company) generates more capacity, flexibility and resources to focus on matters related to the central part of the organization The company providing the service develops its core business (Core business) in the activities that are assigned by the company that requires the services. In this way, the client organization has at its disposal experiences that benefit the processes carried out by the company. Outsourcing gives organizations the ability to enhance their resources to ensure their competitive advantage. During the duration of the outsourcing process, They have to establish a series of quality indicators and service levels between the client company and the contractor.
Figure 1 shows how priorities are distributed in organizations that usually make use of outsourcing.
Distribution of priorities in outsourced companies
Figure 1: Distribution of priorities in outsourced companies. Source: (Business School, 2002).
As shown in the previous figure, a company that makes use of outsourcing can focus on the strategic aspects, which are those that generate competitive advantages to the organization. The attention devoted to tactical aspects remains the same, however, as regards administrative aspects, the attention is reduced and they are now carried out by outsourcers.
Outsourcing modalities.
The types or modalities of outsourcing can be classified according to their purpose (tactical or strategic) and also by their nature, which are described below:
Outsourcing for its purpose.
Tactical.
Tactical outsourcing is considered as a mere outsourcing of an activity that is not essential for the organization and, in general, the reason for its practice has to do with cost reduction.
Strategic.
This type of outsourcing aims to create a stable relationship with the organization to which an activity is assigned; It is considered a strategic alliance which is consolidated according to the responsibility assigned with respect to the others that make up the company, since what is sought is to improve the quality of the assigned activity, improve a service or increase the capacity of the company.
Outsourcing by its nature.
Off-shoring.
It implies hiring the services of third parties established in foreign countries, which offer lower costs due to the labor laws of the countries where they are located, among other causes.
Off-site.
In this type of outsourcing, the company that offers the service is carried out on the premises. Hence off site (off site or place) since it refers to outsourcing being carried out outside the organization that hires the services.
Collaborative.
This type of outsourcing applies to the inactive part of the processes to develop products or provide services to a third party. The term emphasizes opportunities to collaborate with workers who previously did not think these inactive areas of the process were.
Co-sourcing.
In this type of outsourcing, the company that provides the outsourcing service offers some type of incentive or added value to its client, such as: sharing the risks (Hernández Perez, 2014).
Objectives and goals of outsourcing.
One of the main goals achieved with the outsourcing practice is the saving of personnel costs in the section of social security and payroll. The accounting activities are simplified and limited only to the invoicing of income and expenses for the receipt of professional services.
Many organizations opt for outsourcing because they want to venture into new business areas within less competitive sectors, which entail greater income for the company through independent professional personnel.
Other objectives pursued by outsourcing are the following:
- Assign adjacent tasks to external companies Reduce risks Reduce costs Reduce asset management Reduce direct staff Dedication to the organization's own activities
Advantages and disadvantages of outsourcing.
Advantage.
The advantages that outsourcing brings are the following:
- Costs are reduced, as well as investments in plan and equipment Helps redefine the organization Increases commitment to a specific type of technology that improves and facilitates delivery times and the quality of information for critical decision making It allows organizations to deal with the changes in the surrounding environment with agility Creates a great competitive advantage based on a change in rules and a greater scope of the company It allows companies to have the best technology, if they need to train and train your staff to make proper use of it Increases the flexibility of the organization. There is no resistance to change. Allows you to apply the talent and resources of the company in key areas.It reduces and sometimes avoids dependence on key personnel to carry out specific tasks. It also reduces operating risks.
Although the advantages offered by outsourcing are several, this technique has some disadvantages:
Disadvantages.
- The organization may lose control of production processes High staff turnover Stagnation in terms of innovation by the company that provides the outsourcing service Employees from outsourcing are not employees of the company that hires the service, so they lack loyalty to the organization, as well as their permanence to it (Besil Bardawil, Pliego Rosique, & Madrigal Hinojosa, 2013).
Areas where outsourcing applies and does not apply.
The areas of the organization where outsourcing is usually applied are the following:
- Human Resources Area Marketing Area Administrative Area Accounting Area Production Area
The Areas where it is not usually applied to outsourcing or rather, where it should not be applied are the following:
- Strategic Planning, Quality Management, Treasury, Suppliers Control, Distribution and Sales, Customer Service (in some cases)
Difference between outsourcing and outsourcing.
Many of the times, indiscriminate use is made of the words outsourcing, subcontracting or vertical disintegration, to refer to outsourcing, however according to Business School (2002), these present differences in their concepts, which are presented in table 1:
Table 1: Difference between Outsourcing and other concepts
Difference between c and other concepts
Aspects to take into account when making an outsourcing contract.
Outsourcing, being a contract, acquires legal character and is the main element between the company that requests the outsourcing services and the company that provides them. Within this contract there are three dates that are important: the date the contract was signed, the date when the service provider began to carry out its activities and finally the date when the terms of the contract come into effect.
The following factors have to be considered when making the outsourcing contract:
Initial decisions.
- Establish the services to be contracted Determine the resources to be used in the negotiation (technical experience, legal advice, functional administration) Establish the start date of the contract, as well as the end of the contract Ensure the viability of the use of external agents.
Terms.
- Identify the place (s) where the outsourcing services will be performed Determine the equipment that will be used to provide the services Establish the terms that correspond to the services, as well as their level.
The staff.
- Determine if some of the staff of the company that requires the service will be part of the outsourcing contract, either temporarily or permanently. Establish the level of compensation for each party in case of lawsuits, linked to employment issues.
The installations.
- Establish whether the outsourcing will be carried out at the client's or service provider's facilities Establish whether the facilities that require a different contract will be rented or sold to the provider.
Hardware.
- Establish whether the outsourcing provider will be responsible for providing the equipment to carry out the activities. Determine whether the providers will use the client's tools or equipment.
Software.
- Establish whose rights to the software will be in the event that the contracted service is related to software development Establish an agreement for the use of software licenses between the client and provider.
Way to pay.
- Establish the process for calculating the payment for the service Define whether any charges will be made for material and time Establish the payment method Define if a discount system will be applied for non-compliance with some of the terms established in the contract.
Responsibilities of the supplier.
- Provide support in the evaluation of service levels Comply with the agreed terms Regularly review the agreements established in outsourcing.
Responsibilities of the client.
- Establish a person in charge of monitoring the service performed by the external company Establish which procedures will be used to monitor the contract (Martínez Gómez, 2012).
Outsourcing in Mexico.
In a country like Mexico, where the labor dynamic is characterized by being more flexible and is made up of labor relations under outsourcing and hiring of a third party who is in charge of carrying out a production process either within or outside the contracting organization.
The companies that hire the outsourcing service in Mexico, reduce their costs between 40% and 50% in the production processes or in part of them. The areas that make the most use of this technique are mainly: the automotive industry, energy, health, public services, manufacturing, telecommunications, among others (Calixto Bautista, Encarnacion Garnica, Hernandez Maya, & Flores Monterrosas, 2013).
Although outsourcing is a practice that generates multiple benefits, in Mexico this tool, which is considered as an organizational strategy to evade fiscal issues, such as labor issues.
One of the problems that any type of outsourcing entails has to do with the rights of the worker, since external agents do not enjoy the benefits that the internal members of the organization do. On the other hand, external collaborators are often relegated in their functions to be occupied by external workers.
One of the issues addressed by the labor reform in the country is to return the benefits of outsourcing to their roots: hiring specialized elements in the activities that the hiring company requires, that is, seeking specialization.
Conclusion.
Outsourcing as a tool for managing organizations brings with it multiple benefits, of course if it is used correctly.
With the use of outsourcing, the company that contracts the service can detach itself from the activities that do not require its full attention, so that it can concentrate on the areas that are most important to it, leaving the less relevant activities to external companies.
It should be noted that outsourcing as any practice can be used for negative purposes, such as companies in Mexico that only seek to evade tax and benefit payments by making use of external companies within the internal processes of the company that hires the service. outsourcing.
Thesis proposal.
Increase the level of organizational competitiveness of SMEs in the region through the improvement of the processes of the central areas or core businesses.
Goals.
- Streamline the main core processes of SMEs by allocating more resources to achieve it. Delegate the less relevant activities to external agents who are specialists in these activities. Increase organizational competitiveness through the support of third parties in the processes of the organizations.
Gratitude.
I am deeply grateful to the Technological Institute of Orizaba for contributing to my professional training until today, to the National Science and Technology Council (CONACyT) for the financial support it gives me to continue with my Master's studies, to the Masters teachers in Administrative Engineering for giving me the opportunity to enter the program and finally to Dr. Fernando Aguirre y Hernandez for promoting the culture of writing and reading articles.
References
Besil Bardawil, J., Pliego Rosique, MI, & Madrigal Hinojosa, LB (2013). Cause and effect of the labor reform in outsourcing. Social Security Bulletin, 1-15.
Bohon Devars, JA (July 31, 2009). Expansion Obtained from
expansion.mx/opinion/2009/07/30/ventajas-y-desventajas-deloutsourcing
Business School. (2002). HR Outsourcing. IESE Business Schol
(Navarra University), 1-31.
Calixto Bautista, G., Encarnacion Garnica, OG, Hernandez Maya, G., & Flores Monterrosas, E. (2013). Outsourcing. CROSS: Representative Commission Before Social Security Organizations, 25-30.
Hernández Perez, R. (September 12, 2014). Prezzi. Obtained from
prezi.com/dxyxzc4xgeb6/characteristicas-y-tipos-de-outsourcing/
Martínez Gómez, O. (2012). Outsourcing. University for International Cooperation, 2-17.
Uribe-Echeverria, AM, & Rubert Adelantado, G. (2001). The evolution of outsourcing in the manufacturing sector. ICE Economic Bulletin, 11-19.
es.wikipedia.org/wiki/Competencia_distintiva
Core Business: called basic, key or essential competence of organizations. It refers to the activity through which companies generate value and which are essential to establish competitive advantages (Wikipedia, 2017).
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