11 Effective Ways for Outsourcing and Contracting: Differences & Benefits

Outsourcing is when a company hires an external firm or individual to complete tasks that could have been done in-house usually through cost-cutting measures. Contracting on the other hand is when one company enters into a contract with another for services provided by the latter.

11 Effective Ways for Outsourcing and Contracting: Differences & Benefits

When most business executives think about outsourcing and contracting, they tend to use the terms interchangeably. However, there are some very distinct differences between these two practices that might surprise you.

Outsourcing is when a company hires an external firm or individual to complete tasks that could have been done in-house usually through cost-cutting measures.

Contracting on the other hand is when one company enters into a contract with another for services provided by the latter.

The difference lies in whether the work performed has already been completed by someone else or not; if it has then this would be considered outsourcing whereas if it hasn't then this would be considered contracting.

What are the differences between outsourcing and contracting?

Outsourcing

Outsourcing refers to the act of engaging a third-party company or individual to conduct work that would otherwise be performed in-house.

While both practices involve allocating jobs outside of a firm, subcontracting involves hiring an outside firm or individual to complete tasks that are usually temporary by design.

When one company hires an external firm or individual to complete tasks that could have been done in-house, this would be considered outsourcing whereas if it hasn't then this would be considered contracting.

For example, For example,  a company might outsource its marketing and public relations work to an outside firm or hire a PR agency.

Another example would be hiring freelancers (individuals) that specialize in social media management, graphic design, web content writing, etc., for specific projects instead of having them on the payroll as part of your team.

That is because when one company hires an external firm or individual to complete tasks that could have been done in-house, this would be considered outsourcing.

Contracting

Contracting is one of the most popular practices in business. It refers to the act of entering into a contract with another company or individual for services from them.

As an example, say a builder is hired to construct a model house. The contractor's staff is perfectly qualified in all aspects of construction but this does not necessarily mean that this would be enough experience and expertise for building a house.

The builder's staff is perfectly qualified in all aspects of construction but this does not necessarily mean that this would be enough experience and expertise for building a house.

This is where contracting comes into play as the contractor enters into an agreement with another firm that provides services related to construction, which can include either designing or building a house.

The contractor enters into an agreement with another firm that provides services related to construction, which can include either designing or building a house.

This is where contracting comes into play as the contractor enters into an agreement with another firm that provides services related to construction, which can include either designing or building a house.

How to do Effective Outsourcing and Contracting?

Outsourcing and contracting is a way to scale your business, but it also comes with its own set of challenges.

It can be difficult for hiring parties to manage the process effectively; if you don't know what you're doing, then your project can suffer. To ensure that outsourcing goes smoothly, here are some tips on how to do this effectively.

1. Know your needs

Before you start looking for providers, it is important to know what type of work or service you are looking for.

This will help cut down on the time that it takes to find a suitable external firm or individual who can handle all of your specific requirements.

2. Get something in writing

It's also very important that you get everything in writing. This includes details on when the project is due and how much it will cost. Make sure to keep a record of all agreements made with external firms or individuals in case there are problems down the road.

3. Stay organized

One way to stay organized during this process is by creating an individual Work Request Form for each project that is outsourced. This will help you to keep track of all tasks and deadlines.

4. Communicate with your team

Make sure to communicate with the external firm or individual on a regular basis; this can be via email, phone calls, or other messaging services such as Skype.

Most providers are open to working around your schedule rather than following their own.

5. Split into Sections

Split the project into smaller chunks that are easier to manage. This will allow you to hand over a section of work at a time and ensure your team can focus on it without being overwhelmed by too many responsibilities.

6. Define your requirements and lay out strict timelines

This will help in creating a detailed contract with all the specifications of what is expected from each party involved. It also provides clarity on deadlines for tasks that are required within specific time frames.

7. Extensive Background Check

Before deciding on an external firm or individual to work with, you must conduct a background check. This will help you confirm that the person is who they say they are and if their past experience lines up with your requirements.

8. Don't hesitate to ask for references

Requesting reference checks from at least three of the person's previous clients is a great way to gauge their success rate.

Once you find a person that has the skills and experience to do the task, don't trust them right away. Verify their work by having independent parties look over it before making your final judgment call.

9. Terminate the relationship if necessary

If you think that your provider isn't matching up to expectations, then it's best just to cut ties.

This may be difficult or uncomfortable since there will likely have been an agreement made about how much time and money were spent on completing tasks but sometimes you will need to bite the bullet and move on.

10. Ask about additional fees

It is also important that you inquire about other costs such as invoices, taxes, or government filing fees. This way, there won't be any surprises down the road if your provider isn't upfront with all of these details at first.

11. Beware of fraud

Lastly, you should always be careful when hiring an external firm or individual to work with. There are many scammers out there who will take your money and leave you high and dry. Make sure that you do business only with reputable firms if this is the route you decide to go down.

Why do you need Outsourcing and Contracting?

Many companies are outsourcing or contracting nowadays in order to save time, money, and resources. Outsourcing can be beneficial for many reasons including:

1. Faster delivery of projects

It is common practice that one company hires an external firm or individual to complete tasks that could have been done in-house usually through cost-cutting measures.

This allows the hiring party to focus on their core business while the external company focuses on a specific service.

2. Reduced costs

Outsourcing makes it possible for companies to reduce expenses and save money. For example, many businesses hire freelancers who charge far less than a full-time employee or may not require health benefits, paid leave time, or other perks that come with a full-time job.

3. Minimize risk

In some cases, outsourcing allows companies to reduce the overall risks that they face when hiring new employees.

For example, it can be risky for a company whose business depends on trade secrets and intellectual property to hire an in-house team of programmers who may have access to this information.

Outsourcing allows companies to shift risk onto a third party that is not privy to this information.

4. Improves Efficiency

It can be nearly impossible to scale a business without bringing on a team. We can only do so much on our own before we hit our max.

That's why outsourcing is so effective at scaling your business and doing it quickly. Gain more insight on how to outsource from Janelle Joy.

5. Regulatory Requirements

Many businesses outsource because there is a lack of processes and regulatory requirements for the type of work they are looking to complete.

For example, if you need help with your accounting but don't have an accountant on staff, it can be difficult to find one that specializes in this area.

However, by hiring an external firm or individual who already provides this service, you are able to complete the work quickly without having to go through all of the training that it takes for an accountant to learn about your specific business.

Conclusion

Outsourcing and contracting is a great way to scale your business, but you have to do it the right way. This means not working with just anyone who comes along because they claim that they can complete tasks in an efficient manner.

Make sure that both parties are on the same page when it comes to expectations, timelines, and costs. This will help ensure that the work is completed successfully to meet your needs.