There’s often a blurred line between subcontracting and outsourcing. For the common folk, there’s no difference at all. However, there are fundamental similarities and differences that separate them into two distinct services.
Subcontracting is a process that involves a company hiring another individual or firm to complete a specific function that an internal team cannot fulfill. Put simply, subcontracting is the practice of assigning part of the obligation or task under contract to another party called a subcontractor. While subcontracting is another form of outsourcing service that provides specific technical services on a short period of time.
One of the differences between the two is the duration of the service. Primarily, subcontractors are temporary hires for a specific period of a project or until a company hires the position internally. However, there are almost always some exceptions in regard to the specialization they hire that contributes valuable expertise to a contracting business.
Outsourcing, otherwise known as Business Process Outsourcing (BPO) is a business strategy wherein businesses allocate their in-house functions to third-party service providers. The varying degrees of specialization in every industry such as medical, financial, architectural, information technology, and engineering to name a few, make it a compelling service for companies to incorporate. While BPO facilities are located offshore or onshore provides resilience and reliability in terms of unforeseen operational disruptions such as, calamities, political unrest, and unstable domestic conditions.
In addition, a company that outsources will have access to a wide range of talent pools. Fortunately for the outsourcing industry, the pandemic accelerated the popularity of its services. With the majority of the population working remotely, BPO companies are in a good position to offset the lost workforce through their remote staffing service while keeping businesses afloat through their affordable pricing.
The primary selling point of outsourcing is that companies worldwide warmed up to the idea that outsourcing has cost advantages that will benefit their businesses. The cost-effectiveness of BPO services reflects the data put out by Grand View Research, where outsourcing services are projected to expand at a compounded annual growth rate of 9.5% from 2022 to 2030.
Types Of Outsourcing
- Full-service BPO – The jack of all trades in the outsourcing industry, without the master of none part, a full-service BPO is the combination of all specialized processes including knowledge processing, recruitment processing, and information technology outsourcing. Ultimately, a full-service BPO company is the go-to provider for companies wanting to outsource various processes in their organization from administrative functions to specialized roles that impact business decisions.
- RPO – Recruitment Process Outsourcing (RPO) is a service that offers bespoke solutions or packages for every client’s staffing needs or requests. For example, a client can reach out to a full-service BPO company and provide all of the required information and qualifications for a candidate. Afterward, the BPO service provider will handle the entire recruitment process. After all of that is done, the newly hired candidate is transferred to the client at an affordable rate.
- KPO – Knowledge Process Outsourcing (KPO) is the outsourcing of knowledge-intensive information business activities. Put simply, KPO is contracting a professional located offshore or onshore to do intensive work at a cost-effective rate, rather than hiring professionals onshore which will cost more to hire.
- ITO – Information Technology Outsourcing (ITO) is a third-party service provider that specializes in information and technology processes. The outsourcing of IT-related processes has become prevalent among companies worldwide, as a number of them saw the need to reduce cost, access the best talent, and easily scale.
3 Key Differences
As previously discussed, subcontracting and outsourcing are two entirely distinct services. Yet, there are key differences that need to be considered such as industry focus, duration of service, and the scope of control to further understand its own distinct attributes.
1. Industry focus
Subcontracting is more prevalent in the construction industry, where construction firms subcontract various functions such as plumbing, electrical, and other building-specific services. On the other hand, outsourcing serves a greater role in the day-to-day operations of a business. Focusing on sectors such as information technology, digital marketing, financial, and backend services.
2. Duration of service
Subcontracting is generally done on a temporary basis, as their clients are construction related, which has a limited period after the completion of assigned projects. On the contrary, outsourcing is a long-term service catered to companies, it is a cost-effective way to limit the number of the overall staff within an organization, and at the same time, provides access to a wide-range of talents around the globe.
3. Scope of control
One of the key differences lies in the amount of control a company has over the work process and the ability to complete said tasks in-house. In subcontracting, the amount of control the company has over the subcontractor is minimal, due to the fact that a subcontractor abides by what is only stated in the contract. On the other hand, outsourcing provides a greater degree of control for companies. BPO companies handle the employees such as payroll, HR matters, and IT. But when it comes to the work process it’s the hiring company that has control over it.
The Bottom Line
All that being said, subcontracting and outsourcing are both solutions providers for businesses of all kinds. Both forms of service are important aspects of today’s business environment. It helps companies achieve cost-efficiency without compromising the quality of work.