Outsourcing is an arrangement in which one company provides services for another company that could also be or usually have been provided in-house. Outsourcing is an allocation of specific business processes to a specialist external service provider. Outsourcing is a trend that is becoming more common in information technology and other industries for services that have usually been regarded as intrinsic to managing a business. In some cases, the entire information management of a company is outsourced, including planning and business analysis as well as the installation, management, and servicing of the network and workstations. Outsourcing can
range from the large contract in which a company like IBM manages IT services for a company like Xerox to the practice of hiring contractors and temporary office workers on an individual basis.
Many businesses find outsourcing the functions of human resources, such as payroll and health insurance, saves enormous amounts of time, effort and energy. HR is one of the noncore functions of a firm; other companies may have experts to help with this aspect of human capital. The most commonly outsourced streams of business include:
- IT outsourcing
- Legal outsourcing
- Content Development
- Web Design and Maintenance
- Recruitment
- Logistics
- Manufacturing
- Technical/Customer Support
Why do organizations outsource their business process?
The key factors which have led to a growing trend of outsourcing are
1. Lack of expert-labor in some portions of the business process
2. Availability of cheaper labor, whilst not comprising on the quality of output
3. Ability and feasibility to concentrate on the other crucial business process
4. Lower operational and labor costs are among the primary reasons why companies choose to outsource. When properly executed it has a defining impact on a company’s revenue recognition and can deliver significant savings
5. Companies also choose to outsource or offshore so that they may continue focusing on their core business processes while delegating mundane time consuming processes to external agencies
6. Outsourcing also enable companies to tap in to and leverage a global knowledge base, having access to world class capabilities
7. Freeing up internal resources that could be put in to effective use for other purposes is also one of the primary benefits realized when companies outsource or offshore
8. Many times stranded with internal resource crunches, many world class enterprises outsource to gain access to resources not available internally
9. Outsourcing, many a time is undertaken to save costs and provide a buffer capital fund to companies that could be leveraged in a manner that best profits the company
10. By delegating responsibilities to external agencies companies can wash their hands off functions that are difficult to manage and control while still realizing their benefits
11. Outsourcing helps companies mitigate risk and is also among the primary reasons embarked upon
12. Outsourcing also enables companies to realize the benefits of re-engineering
13. Some companies also outsource to help them expand and gain access to new market areas, by taking the point of production or service delivery closer to their end users
