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Outsourcing: What, why, how?

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    Outsourcing: Definition

    Outsourcing is a business practice of passing individual tasks, subareas, or business processes over to a third-party and thereby receiving the results from outside of your own company. Activities or deliverables that your company was responsible for fulfilling will now be provided by a specialised service provider. These tasks are often a business’s secondary functions: tasks that must be fulfilled in order for a company to deliver on its central activity. With outsourcing, one or more tasks or processes are usually given to an external partner. Under certain circumstances, however, some tasks are performed internally (in-house outsourcing). For example, if you have given a task to a different area of your company, or to a department which specialises in it, this is commonly known as internal outsourcing. In contrast, a task given in its entirety to an outside company is known as external outsourcing. The external company may be based regionally or may be a foreign contractor.

    What are the reasons for outsourcing?

    In addition to the hoped-for cost savings of outsourcing, there are other reasons for handing over certain tasks:

    • Lack of know-how: New processes and operations in companies are often necessary, but the employees often lack the know-how and implementation skills required. Outsourcing is an alternative to hiring skilled workers for this.
    • Quicker response: You are more responsive to change because you can pass these tasks on to specialised third-party companies.
    • Optimal scalability: Outsourcing increases the availability of labour. As a result, maximum output can be achieved and production guaranteed – even in the event of seasonal or non-operational capacity fluctuations.
    • Increased efficiency: Companies can concentrate on their core competencies and work more efficiently.
    • Save costs: External companies have a high degree of specialisation with regard to their services. They can work much more cost-efficiently and therefore offer discounted rates.
    • Quality improvement: Outsourcing often brings quality improvements. For instance, in manufacturing a good factory or workshop can improve the quality of products.

    Different forms of outsourcing

    There are different distinguished forms of outsourcing:


    In business process outsourcing, entire company processes are outsourced. An example of this may be partnering with an external service provider to carry out your businesses’ monthly payroll processes.


    Complex tasks, such as conducting  financial due diligence for an entity that a company is considering for acquisition, is usually outsourced to a third party. The respective third party usually has trained experts with a high degree of specialisation.


    Often, individually defined and time consuming or administrative processes (such as archiving or emails or data backup) are handed over to another company.

    However, the responsibility for this remains with the company, as the whole business area continues to be managed independently


    Selective outsourcing mixes business process outsourcing and out-tasking. Distinct sub-areas are outsourced which are more extensive than individual tasks, but nevertheless do not correspond to a complete process.

    Outsourcing: Examples of Outsourcing Tasks


    A company relinquishes the task of finance services by outsourcing several finance and accounting functions. This usually includes back-office tasks like: Financial analysis. Managing accounts payable and accounts receivable.


    A company outsources the support of social media channels to an external service provider (e.g. an agency).


    Companies are able to seamlessly obtain high quality strategic and financial support from experienced parttime and interim FDs, CFOs and other finance experts including qualified CAs. Services include, compilation and annual preparation of financial statements.

    These are just a few typical examples of outsourcing. In practice, a company today can outsource every step of its operations, whether in the production of goods or the provision of services, to an external service provider such as Sapientis Advisory. Thanks to the networked world, it no longer matters whether your company is located in the neighbouring village or on the other side of the world.

    What is the correct approach?

    • Analyse the current state:  Analyse the actual state of a task, a sub-region or a business process. From the analysis, you can determine the best further course of action and estimate the potential of an outsourcing strategy
    • Prepare: Organise a kick-off meeting with all of your company’s relevant stakeholders to get the most out of your outsourcing project. In the meeting, you can lay the foundation for future joint work. It should highlight and discuss the benefits of the project, the content and timing of the project, and the next steps.

    • Select a suitable service provider: Compare potential service providers with each other. For the selection and interaction with potential service providers you need a service requirement and a scope statement. In the service requirement documents you record all basic requirements as well as the rough project concept. However, in scope statements you note the corresponding solutions and detailed requirements. On this basis, service providers can come up with new solutions or develop existing ones. In addition, you avoid possible misunderstandings.

    • Stick to your implementation timeline: Once the contract has been concluded, implementation can begin. It is important to agree on a concrete timetable for implementation in the contract. As part of the project management, regularly check to see whether contractually agreed milestones are being reached.

    Outsourcing Challenges

    Outsourcing is a complex process, which is why there can be mistakes in its implementation. Even comprehensive planning cannot guarantee a smooth process. Here we look at some of the most common mistakes so that you avoid them:

    • WRONG OUTSOURCING PARTNER:  Companies can choose between different outsourcing partners depending on the subject: specialised companies, agencies or self-employed individuals. However, a satisfactory result requires a careful selection of the business partner. With proof of satisfied clients, consider Sapientis Advisory as an outsourcing partner for your business advisory and human capital requirements.
    • ARBITRARY OUTSOURCING: Arbitrarily outsourcing tasks may save you work, but rarely makes sense. Not only from an economic perspective, it is best to first analyse the different fields and activities of your own company in detail and then make a decision.
    • UNCLEAR CONTRACTS: An outsourcing contract should document outsourced tasks and mutual obligations. Unclear questions and statements can lead to misunderstandings and can have cost implications.

    • UNCLEAR AGREEMENTS: Unclear arrangements will often mean you as a business are not satisfied with the results. Therefore, it is important to specify in advance what exactly is being outsourced and how or to what extent the specified criteria will be monitored

    Outsourcing: Advantages and Disadvantages

    The decision to give certain functions to an outside service provider should never be taken lightly. With that in mind it is important that we provide you with an unbiased view of both the advantages and disadvantages of outsourcing. Once the tasks have been outsourced, reintegrating them back into a company can be anything but easy. You should always first check that the benefits outweigh the disadvantages for your company before opting for outsourcing.


    • Core competencies: The company can focus on its core competencies.

    • Cost reduction: The provision of external services is generally more cost-effective than the employment of specialised employees in one’s own company.

    • Time savings: Small businesses and the self-employed need a lot of time to familiarise themselves with new areas of business. Outsourcing saves time and enables investment in other areas.

    • Improving quality: The use of outsourcing strategies often results in qualitative advantages. These advantages are due to the high degree of specialisation of external service providers.


    • Dependence: you make yourself dependent on the respective service provider. If the service provider gets into economic difficulties, for example, this can mean consequential costs for your company.

    • Loss of knowledge: one consequence of outsourcing is the loss of employee know-how.

    • Data protection: outside service providers may gain insight into sensitive corporate data.

    • Expensive reintegration: if you have outsourced certain tasks, a later reintegration into your company can be time-consuming. The implementation is expensive, time consuming and requires suitable staff.

    It is not advisable to outsource the key technologies and competencies of your company to third-party companies as these differentiate you from other companies and competitors. If you select a suitable outsourcing partner such as Sapientis Advisory that has been in the professional services environment for over a decade, you can mitigate a lot of the disadvantages of outsourcing. So choose wisely.

    Outsourcing is gaining importance

    Many companies resort to outsourcing strategies in order to purchase services cost-effectively and to be able to focus more on their own competencies. We cannot ignore the huge impact the pandemic has had on businesses and their outsourcing decisions. According to Deloitte’s, the agility with which organisations respond and adapt to the “new normal” will determine who will fall behind and who will thrive in the post-pandemic world. Outsourcing decisions will play a significantly more strategic role in short-term resilience and long-term growth. The impact has been greater on business process outsourcing (BPO) than on information technology outsourcing (ITO). This is largely due to the regulatory limitations on the extent of virtual workforce’s, rendering BPO firms under-prepared. The pandemic has banished the idea that physical co-location of resources is necessary to develop a trusting relationship in the workplace. The nature of workplace relationships as we know them today is changing drastically. Organisations are becoming increasingly comfortable with hiring through virtual interview meetings, signing new contracts without a formal handshake. A remote work culture is being ingrained gradually within companies, and this will help them access global talent from the most cost-effective locations. With the global economy expected to contract, firms are “looking at ways to preserve cash.” All these developments suggest that the needle will be tilting more towards outsourcing. Outsourcing remains an essential tool for client organisations to support their strategic goals. As always, benefiting relies on a client’s preparedness to invest being met by the service provider’s willingness to embrace flexibility.

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