E-Outsourcing

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The development of Web 2.0 has provided businesses with countless benefits, in particular, improved platforms for information sharing and business relationship developments. However, a new trend that has emerged is the use of outsourcing through the web. E-outsourcing is defined as purchasing services or “outsourcing” services through the web. Started in the early 2000s, e-outsourcing puts traditional outsourcing on the web. An e-outsourcing site acts as a third party provider, providing an online and freelance marketplace for both employers and freelancers to meet and work. On e-outsourcing sites such as oDesk, Elance, and Guru, freelancers can post profiles detailing their job history and qualifications, while employers requiring certain skills search for the appropriate freelancers. With e-outsourcing, all services are delivered and paid for via the web. Additionally, multiple freelancers can be hired from different geographical locations, and work as a team over the web. During the project, all progress is tracked via the site, and when the project is completed, both employers and freelancers can post comments and ratings about each other.


Contents

Traditional Outsourcing

Traditional Outsourcing refers to contracting out tasks or processes to a third-party. Generally, outsourcing is considered beneficial in that the company can outsource non-essential tasks and jobs to contractors who may have more expertise in those fields. For example, manufacturing, customer service, payroll, and computer programming are often outsourced to countries such as the Philippines, India and China. The process of outsourcing business functions to companies outside of an organization’s home country is called off-shoring. Recently, there has been backlash regarding offshore outsourcing and the presumed pros are now considered negligible compared to the large costs involved (1). This has been especially compounded by the rising wages of workers in traditional offshore outsourcing host countries.


Major Pros

- Company can focus on core competencies and outsource the rest

- Reduced labor and tax costs as incentives by offshoring countries

- Access to larger talent pool, including talent from other countries

- Round the clock operations by taking advantage of disparate time zones


Major Cons

- Language skills of foreign workers

- Quality of service not directly controlled by company

- Complicated contractual obligations, difficult to change

- Decrease of jobs in home country; entire manufacturing and service industry is being outsourced

- Possible theft of intellectual property

Benefits to Employers

E-outsourcing offer employers various benefits, and many of these benefits are largely an extension of traditional outsourcing. E-outsourcing provides employers with flexibility, cost-effectiveness, access to talent, risk mitigation, and a level playing field.

Flexibility

E-outsourcing is flexible as opposed to traditional outsourcing, which requires contracts with fixed workforce size and duration. With e-outsourcing, employers have complete flexibility with workforce size in that they can choose the number of workers required for a specific task or project. The duration of employment can also vary, as employers may only hire a worker for a particular project or task, and then terminate the contract once complete.

Cost Effectiveness

E-outsourcing is even more cost-effective than traditional outsourcing. Traditional outsourcing is able to reduce costs primarily due to the wage difference between countries. However, with e-outsourcing, cost reduction is maximized in that employers pay for only the hours worked. This is possible because employees are required to log in to the e-outsourcing site they are working over whenever they are contributing to a project. The sites then keep detailed work logs with statistics that are reviewable by the employer before the pay is approved. In effect, only the productive freelancers are compensated, removing costs involved with the unproductive ones.

With e-outsourcing, employers are able to cut additional costs that are often incurred with traditional outsourcing. E-outsourcing allows for the removal of transportation costs associated with traveling to and from their outsourcing partners' head offices to negotiate or set any contracts (2). E-outsourcing also eliminated the setup costs often associated with traditional outsourcing agreements. Furthermore, employers are not required to honor the labor law of any one country. Contractors set their own hours and may demand their own set of conditions regardless of the country they are working in. Often, this results in great cost-savings for employers.

Access to Skilled Labour

E-outsourcing gives employers access to talent. Employers not only have the choice to hire skilled workers, they can hire the best from around the world, without the barrier of physical geography. Moreover, instead of having a single outsourcing firm handle all the tasks or processes in question, e-outsourcing allows for the leveraging of skills of different individuals for different tasks to yield the best product or outcome. In other words, there is a lot more specializing that occurs.

Reduced Risk

E-outsourcing mitigates risks for employers. With the removal of geographic barriers, much like a well diversified investment portfolio, employers are able to spread work around the globe wherever appropriate freelancers are found. This results in uninterrupted operations in the event of natural disasters or political instability.

Competitiveness

E-outsourcing offers business opportunities to entrepreneurs and small size businesses that were previously unable to compete with large firms due to their size. E-outsourcing provides these smaller entities with the necessary resources required, as well as all the benefits mentioned, in order to compete on a global scale with larger firms. Essentially, e-outsourcing is no longer exclusively for large firms, it is now available to individuals and entrepreneurs.

Traditional Outsourcing vs. E-Outsourcing

With all the benefits to employers, e-outsourcing improves upon the limitations of traditional outsourcing in many regards.

Management

First, traditional outsourcing represents another business operation for employers that requires management. However, e-outsourcing is just an extension of the existing business because it is completely flexible and the employer is always in control of the situation.

Supervision

Second, employers using traditional outsourcing had limited understanding of what the employees of their outsourcing partners were doing. E-outsourcing allows for transparent workforce activity. Employers can provide direct feedback if the level of work is not of acceptable quality, and they can watch their contractors so that they can analyze the way their own business processes are carried out. There is no "black box" situation occuring. On top of this, employers know each individual contractor’s hours logged, and are given screenshots and key loggers to analyze work activity.

Communication Tools

Traditional outsourcing has limited communication channles to their partner firms. Managers on both sides may speak on the phone, meet in person, or use very expensive video conferencing technology on select occasions. E-outsourcing offers improved communication platforms through the use of Web 2.0 technologies that are virtually free. Employers can now communicate with their contractors or team members through the use of Skype, email, instant messaging, forums, blogs, wikis, and through collaboration sites such as Basecamp.

Benefits to Freelancers

Freelancers enjoy many benefits from offering their services through e-outsourcing sites that attract them and keep them with the service. There are many reasons why freelancers choose to offer their skills online. For many it is become a stable form of income, providing greater benefits and freedoms than are available in traditional firm.

Global Marketplace

Freelancers using e-outsourcing sites are connected to a global marketplace not constrained by geography. These freelancers are exposed to many more potential employers than they would be without these sites, which facilitate the exchanges between the employer and the employee. Workers in geographic regions that are experiencing an economic recession or lower wages may find it especially beneficial to being able to work for a company in a region experiencing a shortage of skilled service workers. For example, developers from India or Russia can find themselves working for a U.S. company without ever leaving their homes.

Flexibility

Another benefit of importance is flexibility. Freelancers have the freedom to work whenever and wherever they like. On e-outsourcing sites, the worker can decide on the number of hours of work a week, and are free to negotiate pay for each and every job. It is also an opportunity for self-employment, or as a form of residual income, in which freelancers do their outsourcing work after the traditional work day or on weekends.

Experience

E-outsourcing provides an opportunity to gain experience or get started in an industry. The flexibility of the service allows for the freelancer to find a job that will help develop the desired skills and to negotiate a wage that will attract employers to hire them. For example, many new graduates spend months after graduation looking for work. By e-outsourcing their services, they are able to earn income and gain valuable skills that will assist them in finding a job sooner.

Income

For some, it can make more sense to work on e-outsourcing sites because it can provide them with greater income than they can obtain traditionally. Freelancers who have expertise in specific areas may command more negotiating power when negotiating for pay. For short term projects, employers are more willing to pay a greater hourly wage if the duration of the project is short. Conversely, in a more traditional setting where the developer is a full-time employee, the hourly wage may not be as high. So as long as the developer is good and can constantly find work, the freelancer can potentially earn more by e-outsourcing. Also, the freelancer is guaranteed to be paid for work done as long as his time spent working is tracked by the automatic time-sheets available on many of the e-outsourcing sites. And as long as the freelancer has been working on a project, he will be paid weekly.

Social Benefits

Because e-outsourcing eliminates the physical constraints of geography, disparities in pay between workers in wealthy nations and poor ones are reduced or eliminated. A freelancer in a poor region of the world can find themselves earning nearly as much as his counterpart in a first world nation. Discrimination at the workplace can be avoided with e-outsourcing because it is technically possible for a freelancer and an employer to communicate on a project without ever having to meet face to face. The freelancer can remain totally anonymous and avoid discrimination based on sex, religion, or race. Also, e-outsourcing can allow people who have traditionally found it difficult to find jobs to work. For example, those who are handicapped, either mentally or physically, can find meaningful work, and can be judged solely on their skills.

E-Outsourcing First Hand

There are very few studies outlining the effect of e-outsourcing on business in the long run but exploring advantages and possible disadvantages of this phenomenon in the real world is not a difficult task. As mentioned earlier, there are currently hundreds of thousands of independent contractors available through the various e-outsourcing sites. Anyone who is curious can sign up for an account and be in touch with an experienced freelancer that will be happy to answer any questions you may have.


How is E-Outsourcing Advantageous for Individuals?

An interview of one freelancer was conducted by students at Simon Fraser University. Jose Cesar Puyat is a Philippines based freelancer who holds a double major in management and human resources from the International Academy of Management and Economics. He has held jobs with some of the most well-respected call centers in Manila but has switched over to independent contract work with the help of oDesk. The reason why? As Puyat bluntly puts it, “it all boils down to the money; working on oDesk allows us to get more payment for the same work.” Exactly how much more money is relative to each freelancer’s qualifications but Puyat suggests that the average customer service representative in a call center can earn $400 to $500 US where as he can easily earn over $1000 working on various jobs through oDesk.


Privacy Concerns

The major e-outsourcing sites have come under a lot of fire for being in violation of basic human rights because of the way they monitor freelancer's every move (3). One feature in particular, allows managers to take advantage of a webcam to snap shots of their contractors as they work. This is in addition to the automatic screen-shot and keystrokes updates. Regarding this issue, Puyat says, “to be perfectly honest with you, I think it’s pretty cool, I don’t have a problem with that at all.”


How is E-Outsourcing Advantageous for Buyers?

Puyat provides a lot of information about the advantages of e-outsourcing for the people buying these services (employers). He mentions the obvious fact that there are significant cost-savings involved with hiring overseas freelancers, but he also mentions that the payroll, team management, and project management tools available to employers on most e-outsourcing sites, adds to the overall value proposition. When asked if he believes that e-outsourcing will change the way organizations purchase IT services, he says, “I think so, definitely, if I were to be in the buyers' shoes, especially if I’m starting up a company, I have all the tools I need if I have oDesk” So if e-outsourcing sites can provide huge cost-savings for organizations and such high wage rates for contractors then why don’t more people use these sites? Jose suggests it’s simply a matter of time, “I think people do not know oDesk yet but once they do they will choose this direction.” If Puyat is right, the phenomenal success these sites are already experiencing is just the beginning.


Major E-Outsourcing Sites

There are many sites linking freelancers to employers online today, the most popular of these are oDesk, Elance, and Guru. These sites all have a similar set of tools for both freelancers and employers. Both parties are given access to virtual team workspaces and collaborative tools, such as IM and task completion charts. Features are also available to help freelancers showcase their skills, very similar to job sites like monster. They can upload their portfolios to be seen or take the multitude of skill assessments available from the majority of sites to prove that they have the knowledge to do what they say they can. Automatic time sheets also give ease of mind to freelancers.

oDesk.com

As a marketplace for online work, oDesk has the best business model for both employers and freelancers (contractors). oDesk’s unique approach guarantees contractors that "an hour worked is an hour paid", while guaranteeing employers that "an hour billed is an hour worked" (4). This win-win approach attracts more work to oDesk than to any other online work and marketplace. There are over 10,000 jobs posted on oDesk every day (5). At the same time, hundreds of thousands of top-notch professionals, including web developers, software programmers, graphic designers, writers, customer service representatives and virtual assistants, sign up to offer their services through oDesk. Since 2004, oDesk has undergone many transformations, and it is truly changing how the world works.


Elance.com

Elance is the marketplace for online work teams. Companies use Elance for cost effectiveness, flexibility, and instant access to skilled and tested talent. Professionals use Elance to find work, deliver great results and get paid for doing what they do best.

Elance instantly matches employers with a ready and qualified workforce of more than 155,000 rated and tested professionals with technical, marketing and business skills, and provides the tools to manage online and pay for results. With more than $281 million in earnings to date, contractors and service providers around the world use Elance to meet employers and get paid for delivering great results (6).

Guru.com

Guru.com is the world's largest online marketplace for freelance talent. It has more than one million registered members (7). Guru.com provides businesses with the ability to find the help they need from a variety of talented freelancers worldwide. Their proprietary Ranking System leverages performance data to make the freelancer selection process easy and reliable. For Freelancers, Guru.com offers the opportunity to market sought-after skills to a global audience with minimal cost. From 2007 to 0208, the number of new profiles posted on Guru.com increased by 25% and freelancers were paid 27% more (8).


File:revenue_chart.png

Figure 1. Revenue models of the top three e-outsourcing sites.

Users of E-Outsourcing

E-outsourcing is currently being used by three key groups of people: individuals and entrepreneurs, medium and small firms and finally, large organizations. Each of these segment groups are finding unique ways to leverage the flexibility, and affordability of e-outsourcing to suit their needs.

Large Organizations

Some of the largest organizations in the tech industry, including Yahoo! Inc., Salesforce.com, SAP, and many more are currently experiencing the benefits of e-outsourcing. Yahoo! and Salesforce.com are assembling support teams on oDesk to better serve their customers. Instead of providing basic support for the individuals that use their products in-house, they have pre-screened and certified hundreds of contractors on oDesk. Their customers can now log on to oDesk, navigate to the “Yahoo! Small Business Network,” and begin posting the tasks they require assistance with (9). Shortly thereafter, a programmer that is well versed with the Yahoo! services will apply to job posting and the customer can hire the pre-approved contractor and pay for the services they require. Salesforce.com pursues a similar model for customers who require advanced configuration of their cloud based CRM offering.

This model not only allows these organizations to focus their resources on their speciality which is to produce business software, but it also helps increase customer satisfaction. The response rate and comprehensiveness of the support offered by individual contractors is greater than can be offered by a traditional call center technical support set up where each representative handles hundreds of questions a day. Although the cost of this high quality support is transferred to the customer, this may be a trade-off that they are willing to accept.

Enterprise resource planning software behemoth, SAP constantly uses contractors on Elance for research and development work. Although they may have resources available in a different team, in a different department, the politics within the organization make it near impossible to mobilize these free resources. As Shane Pearlman of Elance explains, “While technically it may be true that somewhere, there is a designer free to do the project within SAP, they may belong to a totally different division. In an ideal world, free from complications and bureaucracy, that person would handle it. In our world, team A doesn't want to share budget with team B….so they grab a budget from somewhere else and outsource” (10). As large organizations continue to reduce costs, and increase their customer loyalty in these tough times, we will see more and more of them joining the e-outsourcing bandwagon to improve their customer service.

Small and Medium Sized Organizations

Small and medium sized organizations are using the services of e-contractors in the more traditional ways. These organizations use e-outsourcing sites to contract out very specific tasks such as graphics design, or coding and updating of the company’s web presence. They are simply using e-contractors to fill the gap between the skills and resources that are currently available in house, and the skills that are needed immediately. They are not necessarily looking for new and innovative ways e-outsourcing can change their businesses. Other tasks these companies are known to outsource through the leading e-outsourcing sites include: live translation, administrative work, data entry, managing websites and even writing company blogs (11).

Individuals and Entrepreneurs

With the advent of e-outsourcing sites, entrepreneurs are finally able to outsource processes much like their multinational competitors. E-outsourcing has completely changed the way entrepreneurs think. With the availability of e-contractors there are far fewer barriers to the development of business ideas. One such example of two entrepreneurs can be observed in the case of Stature Software (12). In 2006, Stature started as the brainchild of two partners. Their entire business model was based on the idea of e-outsourcing absolutely everything except for sales and project management. Gregory Silvano and his partner meet with clients to gather the requirements for a specific project and then they outsource all of the work to oDesk contractors, 50 in total. Without e-outsourcing Silvano and his partner would have required a lot of their own capital. Silvano explains, ``We went from zero to 50 developers in 18 months on nothing but cash flow — no initial investment in the company, and oDesk has been a big part of Stature's success, absolutely.” E-outsourcing also allows entrepreneurs to be a lot more flexible so that they can bid for any size project. As Silvano notes, “I can add new developers quicker than my competitors can…I can ramp up for a new project quicker than they can.`` Today Stature Software does two million dollars’ worth of sales and stands as a bold example of the possibilities for entrepreneurs in this tough economy.

Promote Yourself

Any individual with some marketable skills has the potential to become a freelancer. The following are tips to help you get started. Learning how to demonstrate your capabilities is the most important component to success (13).


Share your Employment History

Employers select freelancers based on feedback that other employers leave on profiles. The more positive feedback you have, the easier it is for you to get business. However, when first starting, you have no clients or feedback. Thus, it is crucial to post credentials on your profile, including employment history, skills, certifications and educational background. Sharing employment history assures prospective employers that you have a professional background and have held stable jobs in the past.


Assess your Skills

Take the online skill assessments available on e-outsourcing sites. Once completed, they are displayed on your profile to demonstrate your skills. Since you are a new freelancer and have no feedback, the skills assessments will help showcase your capabilities and set you apart.


Start a Portfolio

E-outsourcing sites offer a virtual portfolio where you can showcase your work. Displaying previous work done on your profile verifies your skills set.


Find your Niche

Instead of listing all the work done and are capable of doing, it is most effective to focus on one or two strengths. Employers that seek freelancers aim at making a team of superstars with specific skills not available in-house.


Develop a Search-engine Friendly Title

Since employers go to e-outsourcing sites to look for freelancers with specific skills, your title should include keywords associated with your core skill. That way, when employers search for specific skills, the chances of your profile appearing high up in the search results increase. For example, instead of "Internet Technology Consultant”, it would be more effective to have "PHP Web Application Developer, Internet Technology Consultant - Freelance Programmer/Developer, Canada."


Start Low then Grow

Many freelancers initially have to set low rates to compete for work when new to e-outsourcing sites. However, once you complete several projects and gain positive feedback, you can increase your rates. Recognize that employers are willing to pay higher rates when they think you are worth it – they do not always seek the least expensive freelancer.


Join Groups

Join professional groups. Much like joining a professional group on LinkedIn, you can join groups on e-outsourcing sites. Being a member of these groups increases your exposure and opportunities to get business. This is due to the fact that employers looking for freelancers with specific skills or certifications may directly search from professional groups.

Future of E-Outsourcing

The future of e-outsourcing is limitless, considering the advances in technology and increased worldwide communication over the internet. Every large organization that uses the traditional outsourcing model will eventually begin testing e-outsourcing as an alternative. Within the next five years all of these organizations will be using e-outsourcing to some degree. We will also see a larger number of entrepreneurs bring their products to market, entirely with the help of e-contractors.

Competition

E-outsourcing will one day replace all services outsourcing. As competition increases and product life cycles shorten, the ability for a company to quickly find and manage individuals over the web is enticing, and necessary for success. Traditional outsourcing juggernauts such as Wipro, Cognizant, Infosys, and many more will see their share of the global outsourcing market decrease as more and more organizations realize the benefits of e-outsourcing. These firms will eventually see their services become obsolete as business needs continue to become increasingly more short term. Their own employees will also see the benefits of working independently through the e-outsourcing sites and the traditional players will suffer from the effects.

HR Functions

As e-outsourcing gains full momentum human resource departments will see many changes. Many HR functions will become obsolete as department managers begin posting jobs and using the tools available on e-outsourcing sites to prescreen potential contractors. The process which at one point involved HR personnel and weeks has been reengineered. A manager can now post a job, and hire an e-contractor within minutes without any administration. Most HR policies won’t apply to the new relationships being forged with these e-contractors. HR departments no longer have to deal with discrimination in the workplace, fair pay, diversity, maternity/paternity leaves, legal obligation, unions, or any other tricky issues.

The e-outsourcing sites mentioned in this article have also revolutionized the way payroll is carried out. Employees’ productive hours are logged automatically and a report is generated each week. The manager can simply approve the logs and the employees get paid. The employers’ credit card is charged and payroll is complete.

Although these human resource department changes are similar to the changes experienced in traditional outsourcing, e-outsourcing magnifies the advantages. Organizations that outsource work in the traditional way still have indirect obligations to the employees of their partner firms and there are still legal limitations that apply. E-outsourcing diminishes these obligations and limitations.

Unemployment?

Traditional outsourcing typically involves the exportation of millions of jobs to various developing nations, but an in-depth analysis of e-outsourcing shows that many jobs remain in North America (14). E-outsourcing site, Guru.com, does an exceptionally good job at helping employers hire e-contractors close to them. They have arranged their “Hire” section in a way that is divided by geographical region, helping employers who want to keep jobs in their home country or even city, find the right people.

Figure 2. Distribution of freelancers/contractors. Note the large number of American freelancers working on outsourced work.


Due to the flexibility of e-outsourcing, employers have been able to keep jobs in North America but still reduce costs. In traditional outsourcing, the jobs must absolutely be shipped overseas to experience any significant cost savings, causing great socio-economic instability at home. E-outsourcing eliminates the “exporting jobs” stigma associated with traditional outsourcing, and we will see many more westerners choose to offer their services on e-outsourcing sites. E-outsourcing will actually reduce the number of jobs being exported overseas instead of adding to them.

Race to the Bottom

Globalization has caused an enormous demand for the lowest price possible goods and services. Employees in developing nations have bore much of the consequences of these demands. They often work for a wage that doesn’t provide their families with enough to survive, while factory owners and outsourcing firm owners get very wealthy (15). This phenomenon is finding its way to developing nations as well, but to a lesser degree. As we continue to offer products and services for less and less, eventually everyone will be working for next to nothing.

E-outsourcing has proven to defy the “race to the bottom” phenomenon. Employees who are working in developed nations for a shrinking wage rate, may find greater opportunities online. They can decide exactly what their services are worth and they can demand an appropriate wage; no one is to profit from their labor except themselves.


Figure 3. The average wage rate on oDesk is $8.94. Among the job categories, developers earn the highest wage level, and data entry personnel command the lowest.


Employees who are working in developing nations for next to nothing can finally get paid what they are worth. In many cases they can demand wages equivalent to their western counterparts. People are paid in relative to their qualifications not the country where they live. E-outsourcing makes it possible for people in these countries to work less and earn more and it gives skilled people in very poor regions earn a decent wage to support their families. The average wage rate for contractors using oDesk is $8.94 (5), which is above the minimum wage of any state in a highly developed nation such as USA (16). We see this average increasing as more and more highly skilled individuals experience e-outsourcing.

References

1) http://www.cio.com/article/490939/The_Real_Cost_of_Offshore_Outsourcin

2) http://www.cio.com/article/490939/The_Real_Cost_of_Offshore_Outsourcin

3) http://www.centernetworks.com/odesk-eslavery

4) http://www.odesk.com/w/odesk_story

5) http://www.odesk.com/community/oconomy

6) http://www.elance.com/skills_central

7) http://answers.guru.com/About-Guru/Company.aspx

8) http://answers.guru.com/About-Guru/Company.aspx

9) http://help.yahoo.com/l/us/yahoo/smallbusiness/webhosting/difm/difm-15.html

10) http://www.elance.com/p/blog/2010/06/why_big_companies_use_freelancers.html

11) http://www.winningtheweb.com/jobs-outsource-elance-odesk.php

12) http://www.odesk.com/w/case_study_stature

13) http://www.cio.com/article/510669/IT_Contracting_How_to_Get_Started_on_Elance_oDesk?page=2&taxonomyId=3123

14) http://www.guru.com/emp/search.aspx#&&search=Profiles

15) http://en.wikipedia.org/wiki/Globalization

16) http://www.dol.gov/whd/minwage/america.htm

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