Types of outsourcing

In the most general way outsourcing means that a business subcontracts out a part of a company's business activities to a third party (another company). This third-party company specialises in the activities it is hired to perform. Kinds of activities performed externally vary greatly from industry to industry. From sales and marketing, to HR and customer support - almost all activities can be outsourced nowadays in one or another way. 

On the high-level multiple available outsourcing options can be divided into 4 main categories: 

1. Business process (or professional) outsourcing 

Professional or business process outsourcing includes multiple back-office activities needed for business functioning: accounting, HR, payroll, legal, IT or administrative support. Sometimes businesses can subcontract other businesses to expand their product offer / or service. For example, a bakery can hire a logistics company to deliver cakes to customers rather than employ a courrier. 

When used: when an in-house employee(s) for the process is not economically reasonable. 

2. Project outsourcing 

Projects may vary in size and cover literally everything. For example, if you want to launch an ad campaign but do not have marketing and creative staff onboard, instead of starting an entire department for one project you can subcontract the campaign to a third-party. Same is valid for implementation of a new IT system, email or POS setup or a massive upgrade of an existing one. 

When used: when there are no in-house competences to successfully accomplish the project.

3. IT outsourcing 

In some cases IT outsourcing could be close to professional outsourcing, for example for tasks like maintaining your IT infrastructure. IT outsourcing also covers development of mobile applications, server or web-based solutions or any custom software development your company needs. An outsourced IT team can even work on a part of your core IT product. 

When used: lack of in-house expertise + no economical feasibility to hire an employee (team). 

4. Manufacturing outsourcing 

Manufacturing outsourcing services are very industry-specific. Definitely almost everyone has seen “Designed for you by Apple in California, assembled in China” on the packaging of an Apple-product. Another well known example of manufacturing outsourcing are south-east asian semiconductor manufacturers: while chip designs are developed by design companies around the world, the chips are brought to life by giga-fabs. Automotive manufacturers outsource parts of the final car assembly processes, 

When used: when lack of economy of scale makes own manufacturing uncompetitive. 

Conclusion 

There is no single answer to the question whether your business should outsource. And even if the answer is yes, it’s not always easy to decide what to outsource and what to keep in-house. The question should be answered by each company case by case taking into account both benefits and potential settlebacks.