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On-site Employees vs. Managed Outsourcing

by Ramish / May, 05 2014 / Published in BUSINESS

Do you want expertise in section of your business yet not hire the personnel as full time employee? Want to fasten the most time consuming and dexterous task in office?  Are you in the path of streamlining your business? Outsourcing of the job is the trending and in fact the best solution for the aforesaid problems.  Managed outsourcing is the deployment of some of the company’s functions and activities to outside sources for fulfillment as a strategic step and is underlined by a transparent contract with managed service provider (MSP). A proactive role or mediator role is taken up by the MSP to accomplish the work flow of the company. Confidentiality and performance criteria are vividly outlined in the contract with the outsourcing firm and since outsourcing is stringently on contract basis, it is the employer’s prerogative to translate the transaction into permanent contracts. 

The MSP have the onus to manage manpower, customer services, production and also asset management of the particular function of the company.  Either an upfront amount or a fixed amount is charged as part of their remuneration or sometimes they are enrolled in the payroll of the company.

Whether outsourcing ought to be partial or total is completely the company’s mandate. In the former only a few responsibilities of a department like production of specific components, which are laborious, are transferred to the MSP but in the latter the entire functions of a departments is outsourced.

An outright introspection regarding the areas to be outsourced by the company can ease the matter. Only works that can be efficiently operated by the MSP need to be outsourced. Some examples of areas that are heavily outsourced by the companies are: 

  • manufacturing
  • information technology
  • computer programming
  • compliance of tax
  • human resources
  • market research
  • customer care
  • accounting functions and payroll
  • fulfillment of orders

When it comes to information technology and computer programming, outsourcing is mostly focused to gain new knowledge echoing in the stream.  Small startups unable to afford in-house technical experts also tout for IT outsourcing. The total number of jobs outsourced in US in 2013 is 2,637,239 (Source: Sourcing Line Computer Economics; Research Date: 1.1.2014).

Strong points of managed outsourcing

Cost saving is indeed the key aspect that pulls not only the small startups but the midsized and large scale businesses as well to managed outsourcing. The overhead charges like increased payroll, rent for bigger office space, equipment purchasing, set up of manufacture, other fringe benefits etc. are overturned on outsourcing. Human resource management can also become a core issue when hiring in-house employees like, for example, health benefits of the employees. No health benefits are adorned on the personnel performing the outsourced function of the company and it is indeed a high point considering the amount spent per annum on that behalf. Alternatively these resources can be channeled for other operational purpose of the company.  Hence, outsourcing the company activities have the definite potential to give the right thrust for your burgeoning business. 

Managed outsourcing has the overall merit of rollback on the operational cost of the company setting an intense focus on the core part of business.  It can in many ways offer a helping hand to the in-house employees by mitigating their work load.  On the other hand, improvisation on the quality and customer service is enhanced with managed outsourcing.  

Company could leverage on outsourcing to gain more expertise in certain domains where their own knowledge is oblivious.  For example if a new subsidiary product is launched by a company besides its main brand, the company could use the outsourcing option for better marketing and also to maintain its focus on the main brand.  This has the twin advantage of superior quality and a faster turnaround time by the specialized system of the consultants.

 If the employee is not well versed in a subject matter, it obviously would take more money and time to fulfill the task while a trained and professional consultant could finish it in trivial time.  Managed outsourcing is not expensive compared to in-house employee service much against the popular belief. For example an MSP may have more hourly rate, say $70 than an employee who charge $46 an hour. Consequently while computing the annual salary, the MSP seems to incur 1.5 fold more income than the employee. But when looking at the real picture inclusive of the overhead charges and other fringe expenses, the company is seen to spend more amount on the employees than the managed service provider (calculation based on DCAA Cost Accounting Standards). 

MSPs can be utilized only when the company has acute and accurate need of them. Company presumes it as an advantage of managed outsourcing a function that does not require a regular in-house employee. To top it, analyst Tom Osmond has commented that outsourcing of work give out far more better results within the bounds of service level agreement and contract.


Things to be noted

Ensure quality services from the MSP as the outcomes, whether good or bad, are entirely on the company’s shoulders.  If customer call services are outsourced to a different country, the language slang used by the manpower utilized for the purpose should strike the right chord with the customers.  The functions and activities that are outsourced ought to be well in compliance with law confirming security of data.  Consider at least three requests for proposal while electing the right outsourcing partner.

The time frame within which the job has to be completed is an important criterion to presume while recruiting an MSP.  Their unflinching availability during the proceedings of a particular project for which they are hired is also a sharp question to reckon.  It is salutary to be cognized of the outsourcing party’s availability of infrastructure, equipments and other tools to accomplish the company task.  The insurance coverage, permit and license for the job are also equally important aspects to consider. 

Some companies recruit MSPs who can combine variable functions with fruitful outcomes instead of outsourcing to individual service providers. A thorough understanding of the client company and the existence of definite compatibility between the two parties can establish successful relationship. Mutual trust and acknowledgment with reasonable financial incentives go hand in hand for a great working rapport between company and the managed service provider.