This reminds me of my first economics lesson. It’s all about economical trade-offs. If I work as a Lawyer and make $500 per hour, I will not work as Gardener at my own garden, as I am not skilled enough for the task and outsourcing the maintenance of my garden is more cost effective. My gardener is charging me only $50 per hour. And I also do not have take care of his stay. So I get my garden maintained by an expert in the field, with less cost, almost none of my resources being used. This is what outsourcing is – the process of delegating a company’s business process to third parties or external agencies, leveraging benefits ranging from low cost labor, improved quality to product and service innovation.
Outsourcing has been debated in various, inter and intra organizational discussions. There are pros and cons of outsourcing as it impacts not only the top management but also the bottom line. Outsourcing can define success of an organization if managed with right business strategies.
A few key benefits of outsourcing are :
- The primary reason why organizations plan to outsource are 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
- 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
- Outsourcing and offshoring also enable companies to tap in to and leverage a global knowledge base, having access to world class capabilities
- 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
- Many times stranded with internal resource crunches, many world class enterprises outsource to gain access to resources not available internally
- 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
- 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
- Outsourcing and especially offshoring helps companies mitigate risk and is also among the primary reasons embarked upon
- Outsourcing also enables companies to realize the benefits of re-engineering
- 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
To summarize among the reasons to outsource, companies undertake outsourcing and offshoring for a variety of reasons depending upon their vision and purpose of the exercise. While this may vary from company to company, the fruits of labor are visible among some of the leading enterprises world wide, where in outsourcing and offshoring have become a core component of day to day business strategies.