Let’s start with the definition: outsourcing is a strategy based on externalizing specific services previously performed by the company’s staff. In recent years, outsourcing has evolved into a well-established and widely adopted solution by a wide variety of organizations, both in the public and private sectors.
Global spending on outsourcing reached an estimated $731 billion in 2023, confirming its role as a fundamental driver of economic growth. Currently, in Italy, there are about 30,000 companies managing outsourcing processes. These firms generate revenues of around €19 billion and produce added value of €9.4 billion. In this article, we will therefore explore various aspects of outsourcing services, offering a comprehensive, 360-degree view. We will delve into the reasons why many businesses choose to outsource processes or entire departments to companies specializing in providing outsourcing services.
- The evolution of outsourcing services
- Outsourcing: key steps
- Advantages and disadvantages of outsourcing
- Common sectors that use outsourcing
01. The evolution of outsourcing services
Outsourcing, in its simplest form, has existed for hundreds of years. However, it started to gain significant traction in the 1980s. Initially, it was mainly used in the manufacturing sector. For instance, among the industries where it was most prevalent during this period are textiles and electronics.
In the 1990s, outsourcing expanded beyond manufacturing into business processes. This marked the rise of Business Process Outsourcing (BPO), where functions like payroll management, customer service, and IT support were outsourced to specialized companies. In Italy, outsourcing (outsourcing aziende italiane) began to spread during these years due to globalization and economic transformations.
Moving into the 2000s, with the IT revolution, outsourcing services continued to grow. Offshoring became widespread during this time, with companies starting to outsource not only support services but also software development, data management, and IT infrastructure.
In the 2010s, Knowledge Process Outsourcing (KPO) emerged, which included more specialized sectors such as research and development (R&D), data analysis, legal services, and engineering. During these years, outsourcing shifted from being a simple cost-saving tactic to becoming a strategic partnership aimed at leveraging global expertise.
Today, automation and artificial intelligence (AI) are beginning to reshape the outsourcing landscape, and the rise of remote work, driven by global events such as the pandemic, has further accelerated its development
02. Outsourcing: key steps
Choosing to entrust a business process or any specific task to a third party can indeed be the right choice. However, as with any strategic decision, it is necessary to analyze the issue in detail to fully reap the benefits.
In order to outsource effectively, it is essential to follow some key steps:
Choose the right services to outsource: Identify the functions that, for various reasons, require excessive resources and may slow down the company’s productivity. This allows you to keep the focus on your core business.
Define and measure goals: Clearly establish objectives, such as improving productivity, reducing costs, or increasing profit margins. Consistently measure results to evaluate the impact of outsourcing on these goals.
Select reliable partners: Choose partners with proven experience, adequate qualifications, and robust IT security practices to ensure a successful outsourcing relationship.
Understand mutual responsibilities: Define clear roles and responsibilities to promote smooth collaboration and ensure the success of outsourcing.
Read the contract carefully: Review and understand all terms and conditions, costs, and any limitations associated with the outsourcing service.
With a proper outsourcing strategy and effective personnel management, your company can significantly boost productivity and increase profitability.
03. Advantages and disadvantages of outsourcing
The main advantages of outsourcing include increased productivity, cost reduction, time savings, and more efficient use of internal resources. Outsourcing certain business functions allows companies to tap into vast pools of specialized expertise outside their field. Additionally, by reducing the number of internal positions to manage, outsourcing helps simplify the hiring process.
The Benefits and Challenges of Outsourcing
Furthermore, outsourcing has proven to be an effective method of allocating resources to companies that can best utilize them, assigning tasks to industry specialists. As a result, it allows companies to complete their activities at a lower cost. By outsourcing certain functions, companies can focus more on the strategic aspects of their business.
According to a McKinsey report, with the growing demand for big data experts outpacing the availability of such professionals, outsourcing becomes one of the few practical solutions for many tech companies. In this way, they can acquire the talent needed to develop complex algorithms and software. In other words, outsourcing these skills can help companies obtain the specialized resources they need.
A successful example of outsourcing is Apple, which focuses exclusively on developing new software and design while outsourcing component production to other suppliers. However, there are also disadvantages to outsourcing, primarily related to choosing an unreliable partner. For instance, some risks are associated with a lack of control. When delegating and outsourcing, control of a production phase is transferred to third parties. Consequently, this implies a certain loss of direct supervision and greater dependence on others’ work. Additionally, there may also be risks to confidentiality. The outsourcer will have access to your products and, consequently, to the associated sensitive data, which could put the protection of confidential information at risk. Therefore, it is essential to carefully select a professional and reliable partner to mitigate this risk.
For companies that choose to outsource their IT department, for example, the solution to the loss of control is to maintain direct communication with the people who will carry out the requested work. For this reason, at Rubik, we give our clients direct control over resources. Through the Time and Material formula, our clients can interact and communicate with dedicated resources throughout each workday. In this way, the remote team thus becomes a true extension of the on-site team.
04. Common sectors that use outsourcing
Among the main sectors that opt for outsourcing are:
- Technology and IT: Server management, software development, technical support
- Human resources: Recruitment, payroll, performance management
- Customer service: Customer support, call centers
- Production and logistics: Product manufacturing, supply chain management
Conclusion
In summary, choosing to outsource services can prove to be a highly advantageous strategy for many companies if managed appropriately.
If you are looking for a reliable partner to outsource all your recruiting processes for IT roles, Rubik Recruiting is here to assist you. You will have at your side a recruitment and staffing company capable of quickly expanding your internal team in the Information Technology sector. The selection process is carried out through the high expertise of our IT Recruitment Specialists and the know-how acquired in the IT job market.