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Understanding Outsourcing Services

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Outsourcing is defined as 'the strategic use of outside resources to handle activities traditionally performed by internal staff using in-house resources.' In this business practice, a company shifts operations, tasks or jobs to an external contracted third party. While there are a lot variations of outsourcing, all of them can be interpreted in many different ways.

The service provider, often called service provider or third-party provider, ultimately becomes a valued business partner. Outsourcing can also involve the transfer of employees from your company to the outsourcing provider.

There are many different types of outsourcing services:

  • Recruitment Process Outsourcing (RPO)

  • Business Process Outsourcing (BPO)

  • Managed Service Programmes (MSP)

  • Vendor Management Services (VMS)

  • Master Vendor Service (MVS)

  • Staffing Service (SS)

  • Managed Staffing Service (MSS)

We've listed the definitions to these outsourcing services below and examine how they differ.

Recruitment Process Outsourcing (RPO)

According to the RHOA (Human Resources Outsourcing Association), the definition of Recruitment Process Outsourcingis 'a form of Business Process Outsourcing (BPO)where an employer transfers all or part of its recruitment processes to an external service provider.

'An RPO provider can provide its own or may assume the company's staff, technology, methodologies and reporting. In all cases, RPO differs greatly from providers such as staffing companies and contingent/retained search providers in that it assumes ownership of the design and management of the recruitment process and the responsibility of results.'

In a Recruitment Process Outsourcing model, recruitment is provided by third party recruitment agency, which is an extension of the HR department, off-site or on-site. It's often used for high-volume recruitment (for example, call centre staff), short and medium term roles on a project-to-project basis, as well as fully replacing all internal recruitment in an organisation.

Recruitment Process Outsourcing is more than just filling positions when the demand is high; it's also about enhancing the overall recruitment process in an organisation. As the whole recruitment process is taken care of, this significantly reduces internal HR time and allowing teams to focus on other important duties, particularly for companies in the growth phase.

Business Process Outsourcing (BPO)

Business Process Outsourcing (BPO) is the contracting of non-essential business tasks to a third-party provider. BPO refers to the outsourcing of a process - either front office or back office work.

BPO can be broken down into three categories, each based on location:

  • Offshore outsourcing: hiring a third-party provider to perform business functions in a country outside where the products or services are developed or manufactured. For example, expanding your customer services to other countries and providing a native experience for the customer.

  • Nearshore outsourcing: the third-party provider is in a neighbouring country to where the business is located. For example, if your business is in Ireland, in this case, the BPO provider would be in the United Kingdom or another nearby country.

  • Onshore outsourcing: the BPO provider operates in the same country as the contracting business.

Managed Service Programmes (MSP)

A Managed Services Provider (MSP) assumes responsibility for the provision of a defined set of services to its clients and customers.

Under the MSP model the customer retains direct oversight of the organisation or service being managed while the MSP manages and delivers the agreed service on behalf of the customer.

Typically, the customer and the MSP are contractually bound by an agreed set of service level agreements and performance metrics which underpin the MSP relationship.

While MSP arrangements are most commonly found in the Information Technology Sector, they are also utilised across other industry sectors.

MSP Service Delivery can span the full end-to-end management and delivery of a whole service e.g. a complete business unit or can be applied at a more targeted and specific process level e.g. Project Management Office (PMO) delivery.

Managed services are commonly used for:

  • IT functions

  • HR activities

  • Daily operations

  • Lifecycle build/maintenance activities

  • Production support

The MSP company (often a recruitment agency) is the employer and as such are responsible for:

  • Payroll

  • Benefits

  • Training

  • Employee management

Vendor Management Services (VMS)

VMS is a service to manage vendors and measure their effectiveness in recruiting and staffing according to the client's standards and requirements.

The Vendor Management Services (VMS) provider works to find the best suppliers or vendors according to the client's requirements. The provider delivers performance reports, market intelligence and trend analysis to the client. The VMS provider is then responsible for implementing all standards and compliance required by the customers.

VMS as a service is supported by a Vendor Management System, a software application or tool developed by the vendor or sourced on the market.

A Vendor Management Service is normally considered vendor neutral, i.e. the VMS vendor is not a direct supplier of staff to the contract.

This service definition is intended to describe a typical scenario where a client knowingly wishes to engage labour from a wide variety of sources without any inbuilt bias or advantage. This case arises most frequently with multinationals who wish to have a single sourcing and management process for an array of talents across multiple countries.

The client expects to source labour from as many qualified vendors as practical and uses the VMS service to manage supply and to leverage the VMS analytics to streamline the labour force and cost.

In Cpl terms, any service that employ a limited group of 3rd party suppliers to supplement the Cpl supply of labour is not categorised as a Vendor Management Service.

Master Vendor Service (MVS)

A MVS vendor is responsible for sourcing candidates to the client's requirements. By agreement with the client the Master Vendor operates to delivery and qualitative objectives.

The client structures the contract with the Master Vendor to make use of the client's approved vendor list as a support to meeting the recruitment targets.

The Master Vendor is typically offered some days, (3 to 5), advantage over the other approved vendors which gives the opportunity for the Master Vendor to dominate provision in the market.

Commercially the MVS may pay per placement and some trade off of fixed cost of the MVS function may be negotiated against the lead time advantage available to the MVS provider.

Generally, the objective is to fulfil as many roles as possible, but this has to be balanced against the quality and lead time goals of the contract.

Contingent Workforce

Contingent Workforce is the provision of a group of workers to a client by a vendor on a non-permanent basis.

The workforce may comprise any combination of freelancers, independent professionals, temporary or contract workers, independent contractors, consultants or vendors own permanent staff. Collectively this workforce can be referred to as a Contingent Workforce.

The client directs all operational activities of staffing personnel. It's worth noting that this service is intended to provide a staffing service where the client's requirement is limited to the vendor placing the staff on site and they have no other obligation for the performance, sustaining or replacement of staff.

Managed Staffing Service (MSS)

Managed Staffing Service (MSS) is very similar to Staffing Service, except a high degree of performance management is included.

Typically, clients direct the tasks and activities, all other operational duties regarding HR and finance are the responsibility of MSS provider. A HR Business partner, (HRBP), is provided by the MSS on an agreed ratio to the number of staff.

Want to know more about outsourcing?

Cpl is a global provider to all types of companies, from start-ups to multinationals in every sector. We can help you define a set of procedures for workforce planning to avoid or diminish people problems, take advantage of talent opportunities and improve your 'talent pipeline'.

Are you considering outsourcing your recruitment process or other operations?

Why not request a free consultation with a member of our team and we'd be happy to help.