Outsourcing - What is Outsourcing?

So, what is outsourcing? Outsourcing is contracting with another company or person to do a particular function. Almost every organization outsources in some way. Typically, the function being outsourced is considered non-core to the business. An insurance company, for e ample, might outsource its !anitorial and landscaping operations to firms that specialize in those types of wor" since they are not related to insurance or strategic to the business. The outside firms that are providing the outsourcing services are third-party providers, or as they are more commonly called, service providers. Although outsourcing has been around as long as wor" specialization has e isted, in recent history, companies began employing the outsourcing model to carry out narrow functions, such as payroll, billing and data entry. Those processes could be done more efficiently, and therefore more cost-effectively, by other companies with specialized tools and facilities and specially trained personnel. #urrently, outsourcing ta"es many forms. Organizations still hire service providers to handle distinct business processes, such as benefits management. $ut some organizations outsource whole operations. The most common forms are information technology outsourcing %&TO' and business process outsourcing %$(O'.

s set ick $es% that of We& Pol 'o% * tas re We& But l sho ks Out re We& 1 uld at sou 'ot re $usiness process outsourcing encompasses call center outsourcing, thin you rcin Out Thi k human resources outsourcing %)*O', finance and accounting r g sou nkin 8c o n te n t8w h a t9 is 9 abo Dis org outsourcing, and claims processing outsourcing. These outsourcing deals rcin g of ut ani cu g Out involve multi-year contracts that can run into hundreds of millions of out zati sou ssi dollars. +re,uently, the people performing the wor" internally for the sou on? : o te ; rcin on client firm are transferred and become employees for the service rcin Top g Fo g to of provider. -ominant outsourcing service providers in the information +or sa+ ru technology outsourcing and business process outsourcing fields include m e m &$., /-S, #S#, )(, A#S, Accenture and #apgemini. $ott mo om ne) Some nimble companies that are short on time and money, such as startof !ith up software publishers, apply multisourcing -- using both internal and service provider staff -- in order to +or out speed up the time to launch. They hire a multitude of outsourcing service providers to handle almost all m cau aspects of a new pro!ect, from product design, to software coding, to testing, to localization, and even sing to an) mar"eting and sales. issu The process of outsourcing generally encompasses four stages0 1' strategic thin"ing, to develop the es organization2s philosophy about the role of outsourcing in its activities3 4' evaluation and selection, to in cust decide on the appropriate outsourcing pro!ects and potential locations for the wor" to be done and service om providers to do it3 5' contract development, to wor" out the legal, pricing and service level agreement er %S6A' terms3 and 7' outsourcing management or governance, to refine the ongoing wor"ing relationship ser+ ice? between the client and outsourcing service providers. (

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&n all cases, outsourcing success depends on three factors0 e ecutive-level support in the client #on organization for the outsourcing mission3 ample communication to affected employees3 and the client2s trib ability to manage its service providers. The outsourcing professionals in charge of the wor" on both the ute client and provider sides need a combination of s"ills in such areas as negotiation, communication, to pro!ect management, the ability to understand the terms and conditions of the contracts and service level this ,isc agreements %S6As', and, above all, the willingness to be fle ible as business needs change. The challenges of outsourcing become especially acute when the wor" is being done in a different country %offshored', since that involves language, cultural and time zone differences.
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As you evaluate your choices and decisions in outsourcing different components of your operations, you will need to consider the advantages of outsourcing. When done for the right

not enough people and a budget that far e ceeds their contribution to the organi)ation. #utsource to a firm speciali)ing in medical billing. but the si)e of your company is preventing you from performing it at a consistent and reasonable cost. Cost And Efficiency Savings (ack-office functions that are complicated in nature. Operational Control #perations whose costs are running out of control must be considered for outsourcing. 3.reasons. 4. . #utsourcing these functions can provide the additional resources for a fi ed period of time at a consistent cost. #utsource some simple operations in order to reduce the need for office space. #utsourcing will provided a level of continuity to the company while reducing the risk that a substandard level of operation would bring to the company. #ne part-time person could not keep up with all the different providers and rules. outbound telemarketing or data entry. In addition. is another advantage of outsourcing. the back-office operations of a company will e pand also. outsourcing will actually help your company grow and save money. an outsourcing company can bring better management skills to your company than what would otherwise be available.rowth has resulted in an increased need for office space. Focus On Core Activities In rapid growth periods. % ample& An accounting department that is short-handed during ta season and auditing periods. This e pansion may start to consume resources !human and financial" at the e pense of the core activities that have made your company successful. Continuity $ Ris% &anage'ent 0eriods of high employee turnover will add uncertainty and inconsistency to the operations. . +onsider outsourcing those functions which can be moved easily. % ample& An information technology department that has too many pro/ects. -or e ample. Staffing Fle!i"ility #utsourcing will allow operations that have seasonal or cyclical demands to bring in additional resources when you need them and release them when you*re done. 1. Reduced Overhead #verhead costs of performing a particular back-office function are e tremely high. The current location is very e pensive and there is no room to e pand.epartments that may have evolved over time into uncontrolled and poorly managed areas are prime motivators for outsourcing. There are other advantages of outsourcing that go beyond money. % ample& . 2. % ample& A company lands a large contract that will significantly increase the volume of purchasing in a very short period of time' #utsource purchasing. #utsourcing those activities will allow refocusing on those business activities that are important without sacrificing $uality or service in the back-office. A contracted outsourcing agreement will force management to prioriti)e their re$uests and bring control back to that area. . % ample& A small doctor*s office that wants to accept a variety of insurance plans. Here are the top seven advantages of outsourcing. #.

effort. then outsourcing can help your organi)ation achieve all this and more. The Advantages of Outsourcing • • • • • • • • • • • • • • • • Outsourcing your non-core activities will give you more time to concentrate on your core business processes Offshoring can give you access to professional. #nsite outsourcing of the pro/ect will bring people with the skills you need into your company. 1our people can work alongside of them to ac$uire the new skill set. 1our engineers do not have the skills re$uired to design new and upgraded e$uipment. In outsourcing. software and infrastructure as your outsourcing partner would be investing in these Outsourcing can give you assurance that your business processes are being carried out efficiently. manpower. proficiently and within a fast turnaround time Offshoring can help your organization save on capital expenditures y outsourcing. operating costs and training costs amongst others Outsourcing can make your organization more flexible to change You can experience an increased control of your business with outsourcing Your organization can save on investing in the latest technology. % ample& A company needs to embark on a replacement2upgrade pro/ect on a variety of custom built e$uipment. )evelop *nternal Staff A large pro/ect needs to be undertaken that re$uires skills that your staff does not possess. expert and high-quality services With outsourcing your organization can experience increased efficiency and productivity in non-core business processes Outsourcing can help you streamline your business operations Offshore outsourcing can help you save on time. (.% ample& The human resource manager is on an e tended medical leave and the two administrative assistants leave for new /obs in a very short period of time. the advantages of outsourcing are more than the disadvantages of . your company can save on management problems as your offshore partner will be managing the team who does your work y outsourcing. concentrate on core competencies and make use of the latest technologies. #utsourcing the human resource function would reduce the risk and allow the company to keep operating. you can cater to the new and challenging demands of your customers Outsourcing can help your organization to free up its cash flow !haring your business risks is possible with outsourcing Outsourcing can give your business a competitive advantage as you will be able to increase productivity in all the areas of your business Outsourcing can help your organization to cut is operational costs to more than half If you want your organi)ation to stay ahead of competition. #utsourcing this pro/ect and re$uiring the outsourced engineers to work on-site will allow your engineers to ac$uire a new skill set.

misunderstanding of the contract. such as the legal costs incurred while signing a contract between companies& You might also have to spend a lot of time and effort in getting the contract signed With outsourcing. . When outsourcing. you may lose your control over the process that is outsourced Outsourcing. your offshore service provider becomes bankrupt or goes out of business. you might find it difficult to manage the offshore provider when compared to managing processes within your organization Offshoring can create potential redundancies for your organization $n case. you might forget to cater to the needs of your valuable customers as your focus will be on the business process that is outsourced $n outsourcing. (efore outsourcing take the interests of your customers and employees into consideration and then make an informed decision. your organization will have to immediately move your business processes in-house or find another outsourcing provider %he employees in your organization might not like the idea of you outsourcing your processes and they might express lack of interest or lack of quality at work Your outsourcing provider might not be only providing services for your organization& !ince your provider might be catering to the needs of several companies. The pros of outsourcing have driven more organi)ation to step into offshoring and e perience the benefits that it has to offer. The Disadvantages of Outsourcing • • "t times. it is more cost-effective to conduct a particular business process. your outsourcing provider will be able to see your company#s confidential information and hence there is a threat to security and confidentiality in outsourcing When you begin to outsource your business processes. If your organi)ation is genuinely interested in outsourcing. However the disadvantages of outsourcing are less than the advantages of offshore outsourcing. there might be not be complete devotion to you and your company y outsourcing. poor quality and delayed services amongst others& • • • • • • • • • • The disadvantages of offshoring give organi)ations an opportunity to think about what they are stepping into. though cost-effective.outsourcing. lack of communication. you might not e perience any of these disadvantages of offshoring. renewing contracts. might have hidden costs. let not the disadvantages of outsourcing stop you. such as. your organization might suffer from a lack of customer focus %here can be several disadvantages in outsourcing. rather than outsourcing it While outsourcing services such as payroll processing services and tax preparation services. if you find a reliable outsourcing partner.

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