6.5.2024

Outsourcing company functions – four key points for success

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Outsourcing

Geopolitical changes and slow economic growth have challenged companies in recent years and led them to consider new ideas for business development and cost structure. As part of this trend, many companies have outsourced their functions or are considering outsourcing or changes to service providers. Outsourcing is often a practical method of business development that increases flexibility. However, the arrangement should be planned carefully in order to implement the outsourcing in a controlled manner, keeping any future changes in mind as well.

When planning to outsource a function, the company should first take a look at its strategy: how will the outsourcing support the strategy as efficiently as possible? For example, if the company has prioritised digitalisation and artificial intelligence in its strategy, the outsourcing of ICT services should be implemented cautiously. Relevant aspects may include the service provider’s expertise, the extent and flexibility of services as well as service development opportunities.

Secondly, the possible effects of regulation should be taken into account at an early stage when outsourcing ICT services. International transfer of personal data, for example, involves certain restrictions, and EU regulation on cyber security and artificial intelligence may have to be taken into account in the service arrangement and related contracts.

The third matter before taking any concrete steps in the outsourcing plans is to identify which specific services are outsourced and what kind of practical implications the outsourcing could have for existing employees and their employment relationships. Does the outsourcing entail assignment of business or reductions in labour usage? This may significantly affect the outsourcing timeline and the company’s obligations under the Act on Co-operation within Undertakings. Furthermore, what are the implications of the outsourcing for customers or existing service providers?

The fourth key aspect to successful outsourcing is the contract, carefully prepared for its intended use, alongside a well-planned negotiation process. It is important to ensure that the contract secures the company’s rights as the purchaser of the service, sufficient flexibility and rights in any future changes. It is advisable to anticipate possible needs for changes in the future and use the contract to ensure that the service provider can be changed easily. Understanding the phases of the negotiation process and planning in advance have an important role in meeting these goals in a cost-efficient manner.