Outsource a freelancer

Outsource a freelancer

What is outsourcing?

Outsourcing is where one party contracts another to fulfil or perform a business function or process rather than performing that function itself internally.

Why outsource?

Deciding whether to insource or outsource can be a difficult decision to make because of the complexities and business risks (1). But, the rewards can be substantial; some of the benefits of outsourcing can be: reduced costs, better service, better results and access to new technology, as well as allowing staff to focus their efforts on higher-value work and so improving output (2). As organisations strive towards greater competitiveness, flexibility and to improve their overall performance, emphasis has shifted from other non-core business activities to greater focus on business processes likely to bring competitive advantages (3) and increased profits.

Outsourcing is therefore increasingly viewed as a shrewd business strategy to pass skills and competencies to specialists for a competitive advantage. Organisations are able to choose to outsource activities for which they do not have a critical need, or for which they need specialist skills or equipment (4). These normally include, design, Information Technology / Information Systems (IT/IS), delivery, courier, print, packaging and even customer services.

Who are freelancers?

There are increasing numbers of workers that do not work for organizations on a permanent basis. These independent workers, both sole traders and independent service firms are known collectively as the contingent workforce and work as freelancers.

From 1995 through 2012, the total workforce of contingent workers grew by an estimated 4.3 million workers. And despite the economic downturn, the overall contingent workforce is still numerous and is projected to grow by 40% to roughly 64.9 million by 2020.

Despite the economic recession, this independent workforce has continued to attract more workers and providing more jobs. In 2010, 27% of those surveyed in the Freelancers Union Annual Worker Survey had hired other freelance workers.

The freelancers of this contingent workforce are comprised of small and mid-sized independent firms, agency temporary workers, contract company workers, direct-hire temps, independent contractors, on-call workers, self-employed workers, and standard part-time workers from a wide spectrum of specialities, comprising:

Graphic composition of freelancers and outsourcers

  • 24% writers
  • 12% copywriters
  • 11% designers
  • 9% translators
  • 7% web developers
  • 6% editors
  • 4% marketing
  • 4% business
  • 3% software developers
  • 2% assistants
  • 24% other

Across all of the professions, 66% work full time, 16% part-time (with a second full time job), 13% part-time, and 5% full time (with a second full time job). 90.2% of the freelancers surveyed work from home.

Who is outsourcing? A look at outsourcing trends

The outsourcing market in Western Europe has grown enormously since the early 1990s. A survey by the International Data Corporation in 2012 showed that worldwide spending on outsourcing services reached $86 billion in 1996 and is expected to increase to $136.2 billion in 2016. The outsourcing market in Western Europe was $33.6 billion in 2001, a figure representing approximately 26% of the global outsourcing market (5). American businesses spend more than $425 billion per year on freelancers, according to a 2009 Staffing Industry Analysts Contingent Workforce Estimate.

The UK remains one of the most mature outsourcing markets, and closest to the U.S. in terms of market dynamics. In 2000, 75% of UK enterprises outsourced some aspects of their business (6). This trend has been increasing, for example in IT/IS departments outsourcing of operations, maintenance and application development has resulted in reductions in permanent IT/IS staff.

Table 1 Worldwide and U.S. business process outsourcing market forecast 2012 – 2016 ($ million)

  Worldwide U.S.
2016 $202.6 billion  $92 billion
CAGR   2012–2016 5.3%  4.2%

Source: International Data Corporation, 2012.

This IDC study shows the IDC’s forecast for the worldwide and U.S. business process outsourcing market by key horizontals for the 2012–2016 forecast period. At a worldwide level, IDC expects that the BPO market will grow at a five-year CAGR of 5.3%, reaching $202.6 billion in 2016. The U.S. market is expected to grow at a five-year CAGR of 4.2%, reaching $92 billion in 2016.

“The BPO services vendors are beginning to assist the transformation efforts of their customers. Evidence is now seen in case studies from providers that describe case studies where they have leveraged their automated subprocess solutions, big data, business analytics, mobility, cloud delivery, and so forth, and as a result, customers are not only reducing errors/defects in their processes but beginning to standardize processes globally, analyze business performance (often in real time), and gain more insight and control over their business operations,” said Mukesh Dialani, research manager, Worldwide BPO and Engineering Services, IDC.

There are constantly new reasons that drive and encourage a business to outsource a freelancer, for example; shortages of skilled human capital, privatisation and deregulation pressures, emerging technologies and the global financial crisis. European companies are becoming increasingly competitive and as a result numerous businesses are beginning to outsource many of their business functions. In addition, government privatisation, public sector budget cuts and industry deregulation are all pan-European business issues that are driving the increasing demand for outsourcing services. When outsourcing service types are compared, Business Process Outsourcing (BPO) is the most popular form worldwide (5). Promising areas for BPO in Europe are considered to be administration, accounting, human resources, logistics and customer services. The IT/IS outsourcing market is projected to grow at a five-year CAGR at 2.2% reaching $136.2 billion by 2016. (7).

Many worldwide businesses are trying to reduce operating costs to maximise profits and selective outsourcing in particular is gaining in popularity with signs showing an increasing tendency to outsource to independent freelancers, like those at Freelancer.com. At Freelancer.com employers can hire freelancers for their: software, writing, data entry and design, engineering, sciences, sales, marketing, accounting and legal service needs. The average job is under $200, making Freelancer.com an attractive proposition for small businesses. The relatively low costs and risks makes outsourcing freelancers an attractive option for many small businesses requiring a wide variety of jobs to be done that cannot justify the expense of hiring full time. Most of the outsourcing contracts are based on fixed price agreements. It is usual for outsourcers to include risk/reward incentives in their deals especially when agreements contain significant high-value services like business consulting for example.

The rising use of freelancers

Freelancer.com is the world’s largest outsourcing and crowdsourcing marketplace with over 3.3 million users and 1.5 million projects advertised as of April 2012. Freelancer.com has become a popular choice for those seeking to outsource jobs and those seeking to work on jobs because of the constant stream of new jobs posted, the variety of jobs posted and because Freelancer is safe.

Freelancer has a unique milestone payment option that is a special, optional feature that can be added to posted jobs. The Milestone Payments feature is a kind of escrow system where monies for the outsourced job are held by Freelancer.com and released when the employer is satisfied that the work outsourced has been completed.

Despite the global economic crisis over 170,000 jobs were posted in the first quarter of 2012 on Freelancer.com, an increase from 130,000 jobs posted in the previous quarter.

“Amongst the rise in outsourcing, Business Process Outsourcing (BPO) has increased by 303% in the first quarter of 2012, Data Processing up 187% and Data Entry 111%”. (Vuki Vujasinovic, Communications Manager Freelancer.com, http://press.freelancer.com.s3.amazonaws.com/2012-04-26-Freelancer-Fast-50-Q1-2012.pdf).

The contingent workforce of freelancers continues to grow as more businesses outsource. It is estimated that at least 90% of firms have used freelance or contracted talent. This trend is only expected to continue as a 2010 Economist Intelligence Unit Report found 61% of senior executives expect a growing proportion of business functions to be outsourced. Tech giant Oracle predicts outsourcing to freelancers will increase by 40% over the next 10 years.

The strong contingent workforce is evidence of a shift in current employment methods. Businesses are reshaping their business models and finding that outsourcing and using a more flexible, fluid and dynamic workforce has more benefits than drawbacks.

Benefits and drawbacks of outsourcing from a major EU bank case study

The senior manager of technology planning for IT at a major EU bank that has been outsourcing its IT/IS functions believes that their “Outsourcing has been successful . . . we are fairly satisfied with the deal. We have transferred our burdensome IT tasks and risks such as the legacy problem and the year 2000 problem over to the vendor. We have also optimised our uses of telecommunication by adopting a ‘pay as used’ approach . . . by sharing data communication resources. This has allowed us to transfer our fixed (telecommunication) costs to variable costs.”

However, there are drawbacks particularly for organisations planning to outsource technological functions, that the benefits from outsourcing may be short-lived given the rapid change in technology.

Results from outsourcing from the case study

Those who outsource wisely and carefully stand to gain lasting value-added benefits from outsourcing. Such benefits for the major EU bank for example included:

  • standardisation of functional processes;
  • better results;
  • more creativity;
  • increased productivity;
  • automation of business processes;
  • effectively deployed resources;
  • consolidation of dispersed processes or departments;
  • departmental reorganisation and restructuring;
  • employee empowerment;
  • just-in-time resources;
  • more efficient resource usage;
  • service elimination;
  • tougher hardware and software negotiations;
  • service level agreements;
  • software standardisation;
  • increased efficiency and effectiveness; and
  • reduced costs from vendors and suppliers based on economies of scale.

Conclusions

 

There are increasing amounts of businesses that are choosing to outsource and hire freelancers because of the possibilities of; saving the business money, or allowing the business to focus on more important higher value work, or because they require specialist expertise or equipment.

It can be concluded from the case study of the major EU bank that short term outsourcing or outsourcing for a specific task (i.e. to hire a designerto design a new company logo) is relatively risk free and can result in big financial savings. Long term outsourcing is much more difficult, higher-risk and the potential benefits and financial savings alone may not warrant a move to outsource.

Currently the advantages of prudent short-term outsourcing and hiring of freelancers can be relatively risk free that has significantly beneficial results for businesses and gives them a competitive advantage over their counterparts. It’s hardly surprising then that more and more businesses are adopting Peter Drucker’s mantra of: “Do what you do best and outsource the rest”.

Sources:

(1) Cronk & Sharp, 1995; Antonucci & Tucker, 1998; Marcolin & McClellan, 1998

(2) Ketler & Walstrom, 1998; Lacity & Willcocks, 1998; Quinn, 1999

(3) Ngwenyama & Bryson, 1999; Quinn, 1999

(4) Quinn & Hilmer, 1994

(5) Currie, 1998

(6) Collins 1998

(7) David Tapper, Vice President, Outsourcing and Offshore Services Market Research, April 2012 http://www.idc.com/getdoc.jsp?containerId=234202

(8) Baldwin, Irani, Love. Outsourcing information systems: drawing lessons from a banking case study. European Journal of Information Systems (2001) 10, 15-24.

(9) Statistical Abstract of the United States (US Census Bureau 2011)

(10) US Bureau of Labor Statistics

(11) US Department of Labour

(12) Inc.com Telecommunicating by the Number: April 2010
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6 responses to “Outsource a freelancer

  1. Thanks for this amazing post! We think it’s extremely informative. The power of the Internet in modern times is truly a crucial tool for both businesses and individuals.

  2. Pingback: Who are freelancers and which countries outsource the most work to them? (INFOGRAPHIC)·

  3. I just came across this post, read it. Good stuff! I think a lot of people would want to hear the pros and cons before actually diving into outsourcing. You’ve done that in this post and I especially like the conclusion part of it ;) More power!

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