What is outsourcing?

Outsourcing, in its most basic form, is the outsourcing of a good or service that was previously produced by the company.

Outsourcing, which started in the 1980s, has become widespread all over the world after the 90s. In order to focus on their core capabilities, businesses delegate some of their work within the projects carried out to companies that are experts in their field. With outsourcing, companies ensure that the work is done in a shorter time, cheaper, more error-free and high quality by competent people who are competent in the subject.

Outsourcing allows for an increase in product quality and customer satisfaction while reducing costs. The popularity of outsourcing is on the rise as temporary sourcing for temporary needs reduces operational burden, thus creating an opportunity for companies to focus on potential business opportunities. The company is not busy with issues such as the search for suitable personnel, control of the delegated work in accordance with the plan, project management.

• Focus on work
• Cost minimization
• Conversion of fixed cost to variable
• Determined service levels
• Process and Procedures
• Large and flexible resource pool
• Resource continuity
• Reduced cost and technology risks

Of course, outsourcing is not without risks. These can be roughly listed as follows:

– The inability of the business requesting outsourcing to manage this process effectively may prevent the business from achieving the expected benefits.

– The correct determination of the criteria in the selection of the outsourcing company and conducting the needs analysis in the light of accurate data are the main factors in preventing negative scenarios. It is among the possibilities that the opposite effect may arise on this path for time and cost savings. It is the responsibility of the company to ensure that the job descriptions, which are free from assumptions and whose framework is clearly drawn, are transferred to outsource companies with the right competence. Otherwise, it may increase the costs by reducing the efficiency of the business in the areas where outsourcing is utilized.

– If the company that wants to benefit from outsourcing has not foreseen a realistic cost for the area to be outsourced, it may encounter various additional costs that are not foreseen in advance and not included in the outsourcing contract. This may limit the savings that the company plans to achieve by outsourcing.

Outsourcing means transferring a number of jobs to specialized companies that will increase their productivity without breaking away from their own business areas. Outsourcing is a very common service in the IT sector and a large proportion of these services are software development services and the outsourced employment model is increasing day by day.

Today, it is observed that outsourcing in Turkey, as in the world, is concentrated on system integration projects, consultancy, training, human resources, finance, customer services, logistics, administrative affairs (such as private security, cleaning, service transport), especially information systems. In particular, banks prefer to outsource their electronic data processing systems to subcontractors instead of establishing large systems in-house. The reason why outsourcing has gained importance and prevalence in Turkey in recent years as well as in the world is that businesses want to increase their competitiveness due to increasing competition, globalization and developments in information technology.

Despite the benefits of IT outsourcing, increasing dependency on the supplier also carries the risks of hidden costs. For this reason, it is important for managers to manage their relationships with IT suppliers correctly. In IT outsourcing relationships, there are mainly two types of management models: formal and relational. Formal management involves the development of formal mechanisms such as contracts and service level agreements, critical performance indicators and the process of managing these agreements. Relational management aims to develop norms and behaviors that include the more abstract and social dimension of the relationship in order to control inter-organizational relationship activities and reduce the risk of opportunistic behavior.

Both management mechanisms have unique strengths. The formal method effectively shields against opportunism as it specifies in writing the expected outcomes and behaviors for the buyer and supplier.

The relational method, on the other hand, is more appropriate, especially when unforeseen circumstances arise in the dialogue. This is because it enables more flexible reactions when problems arise that are not covered by the contract. For this reason, both forms of management complement each other.

This working method, which is preferred by employers for reasons such as reducing costs, using the workforce effectively and focusing on the actual work, should also be examined, and evaluated in terms of employees’ feelings and thoughts. Although there are few studies on the subject, the job satisfaction and organizational commitment levels of outsourced employees in the IT sector, where the number of white-collar employees is predominant, have been investigated. The effect of demographic characteristics such as age, gender and marital status on the pleasure and love that people feel for their jobs was tried to be determined. The relationship between the sense of belonging that employees who get along with their colleagues, who think that their managers are fair, who are appreciated and who think that they have a chance to move up in their jobs and the sense of belonging they feel towards their organizations was examined. As a result of the studies, it was found that the job satisfaction levels, and organizational commitment of outsourced employees were high.

According to Computer Economics’ latest research report on IT outsourcing statistics, “The proportion of outsourcing businesses in the IT category is increasing.

Among the IT operating expenses of enterprises, outsourcing expenses increased from 9.4% in 2018 to 12.7% in 2019, reaching a new peak in the past five years.

34% of companies said they outsourced a lot of network projects, which marks an increase from 30% last year.

75% of companies outsource maintenance work, up from just 36% at the end of last year.

David Wagner, vice president of research at Computer Economics, pointed out that the main driving force for this growth comes from small and medium-sized enterprises. Due to insufficient funds and rapid growth, the emergence of outsourcing teams can often provide companies with better solutions, such as fulfilling the phased tasks of the enterprise, a single task that is not suitable for the long-term development of corporate capabilities, or a task that requires a professional. However, there are better outsourcing service providers than small and medium-sized enterprises themselves to gather resources and provide better service solutions.

There is a prevailing view that outsourcing cannot be a reliable source of development in developing countries. In this context, it is criticised that when wages and costs rise over time, large companies will turn to regions and countries where they can obtain services at lower costs. However, it is often emphasized that “outsourcing” alone is not sufficient for the development of a country and the creation of employment.

In Turkey, the share of the service sector in the economy is gradually increasing, while the shares allocated to agriculture and industry are decreasing, as we observe in OECD countries, which were established after the Second World War to strengthen the economies of European countries. As of 2004, the share of agriculture, industry and services in GNP is 15.3 per cent, 24.3 per cent and 61 per cent, respectively.

Today, the number of companies operating in the IT sector in Turkey is increasing. However, a significant portion of the companies are local and small-scale companies.

An efficient and cheap communication network means a reduction in the transmission costs of services. This means that it is one of the most important factors that will provide an advantage in the cost of services reflected to the consumer. Turkey seems to have a well-developed infrastructure and capacity in high-tech supporting sectors such as telecommunications and electronics industry, which will provide the necessary infrastructure for the development of the IT sector. This can be seen both in terms of export performance and the size of the sectors. The effectiveness and efficiency of information technologies are closely linked to the existence of the necessary infrastructure. In this respect, although Turkey has the necessary supporting sectors, the efficiency and adequacy of communication and information services should be increased through investments in infrastructure, and cheap and efficient communication required for outsourcing should be provided.