Nowadays, more and more companies are outsourcing more and more services, that were previously carried out within the company, to external business operations (outsourcing). Frequently, former employees, who were previously employed, now perform these tasks as part of an independent activity. Outsourcing now occurs in almost all areas of companies, but the following have emerged as particularly typical:
- Customer service.
- Information technology.
- Marketing (in all its forms, including social media and content creation),
- graphic design,
- Media creation.
Outsourcing involves both opportunities and risks for both the outsourcing company and the service provider. If you have decided to take over outsourced services for a company, you should therefore present in your business plan not only the advantages and disadvantages for yourself, but also those for your client. Only in this way can the reader get an idea of whether the business relationship resulting from outsourcing can be sustainable and will not be terminated by the client soon.
Interest of the outsourcing company
Companies regularly outsource business areas only if they can achieve additional benefits. Advantages result primarily from the concentration on the core business, for example. By outsourcing subordinate activities, the company does not have to maintain certain infrastructures such as IT systems or office space itself; the same applies to personnel. The company no longer needs to worry about these areas; instead, the management can focus its attention on the core business areas.
Another major advantage is cost reduction. This results in particular from the reduction of investments for operating resources and the elimination of personnel costs (e.g. salaries or training of own employees). In addition, most outsourcing contracts are designed in such a way that only the actual service is paid for; costs due to vacancies or idle time do not arise in the first place.
In addition, external procurement often leads to qualitative advantages. For example, the awarding of contracts to specialized suppliers who are technologically up to date is the only way to gain access to state-of-the-art technologies. The tasks are thus processed more efficiently and with higher quality.
Last but not least, outsourcing ensures a high degree of transparency. Since the service provider acts as an external partner, the services must be defined more clearly than if they are provided within the company itself. This creates an understanding not only of the scope and depth of the service, but also of its value and the associated risks.
A significant disadvantage of outsourcing is the resulting dependence on the service provider. If the service provider encounters economic difficulties or its results are quantitatively or qualitatively insufficient, this can result in high follow-up costs for the company. The outsourcing of processes also inevitably leads to a loss of know-how. If activities are completely outsourced, the necessary knowledge is lost within the company itself and cannot be easily rebuilt.
Particular problems can arise if the service provider gains access to sensitive company data. Under such circumstances, a trustful cooperation is indispensable.
Interests of the service provider
The main advantage of the service provider is that he receives an order. This means that he can often earn a higher income than if he were to perform the same activity under a contract of employment. In addition, he can accept further orders in order to increase his overall profit.
However, in addition to the general opportunities and risks associated with self-employment (see section 1.2), it should be noted in the case of outsourcing that the service provider is in competition with other providers. There is therefore a particular risk that the client will terminate the business relationship at a later date or only wish to continue it on less favorable terms.
In view of the above-mentioned advantages and disadvantages of outsourcing, the reader will focus his attention above all on whether your business model meets the special requirements for outsourcing processes. In particular, the following should be noted:
- Relationship with the client: The basis of every business relationship is trust! In your business plan, you should therefore explain what your relationship with the client is based on, for example, a previous employment or a friendship.
- Precise contract definitions: If an outsourcing contract has already been concluded or is currently being negotiated, it should contain precise agreements on the standard of service, scope and timing (service levels) as well as clear agreements on liability and claims settlement in the event of non-fulfillment or partial fulfillment. This implies that you have thoroughly considered the nature and scope as well as the intrinsic value of your activity with your contractual partner and that later disappointments are (largely) excluded.
- Control: The outsourcing company must be able to control your work based on clearly defined performance characteristics. A regular exchange between the client’s employees and you should not only be agreed upon, but should actually take place. This allows the conclusion that both parties are willing to maintain the business relationship in a professional manner.
- Contract period and termination: The contract should be for a sufficiently long period of time and should not be terminable in advance. Ideally, the minimum term should last until the critical initial phase of your company is overcome and, if necessary, it can survive economically without this contract.
You are only really self-employed if you bear the full entrepreneurial risk yourself and are free to organize your working hours. According to § 611a of the German Civil Code (BGB), this does not apply if the employment contract obliges the employee to perform externally determined work in personal dependence in the service of another person. The right to give instructions can concern the content, execution, time and place of the work. A person is bound by instructions if he is not essentially free to organize his activity and determine his working hours. The degree of personal dependence also depends on the nature of the respective activity. In order to determine whether an employment contract exists, an overall consideration of all circumstances must be made. If the actual implementation of the contractual relationship shows that it is an employment relationship, the designation in the contract is not relevant.
If you are unsure whether your intention is to become a dependent employee or self-employed, you can have your social security status checked at the Clearing House of the German Pension Insurance Federation. Especially for employees who work almost entirely for a client on a permanent basis, an examination protects you from surprises later on!