Benefits of Outsourcing
Managing an enterprise is a tough job. If the small businesses have
already a number of great responsibilities just to keep the enterprise working
properly, how much more the large corporations can handle numerous functions.
Thus, help outside the firm is sometimes needed in the continuous growth of the
organization.
Outsourcing, or also called sub-servicing, has become a popular trend in
the recent times in the business world. Outsourcing is contracting with another
company or person to do a particular function for a certain enterprise. The
functions being outsourced is usually non-core or non-specialty of the business.
An example is an insurance company that outsources janitorial and security
operations to the firms that specializes those kinds of services.
The process of outsourcing generally encompasses four different stages.
First, the organization initiates strategic thinking in order to develop the
organization’s philosophy about the role of outsourcing in its activities. Second, it
evaluates and selects the appropriate outsourcing projects, potential locations
and best service providers. Third, the enterprise and the third-party service
provider moves on to the contract development discussing the legal pricing and
service level agreement terms. And fourth, the outsourcing management team
refines the ongoing working relationship between the client and the outsourcing
service providers.
The success of outsourcing mainly depends on three factors: a proper
executive-level support from the client’s organization for the outsourcing
functions; effective communication between the client organization and the
service provider firm; and the client’s ability in managing and handling their
service providers. Negotiation, project management and the willingness to be
flexible when a change comes along the way is also important in keeping the
smooth flow of outsourcing.
On the other hand, there are many benefits of outsourcing that’s why it
emerged from the recent decades. In fact, some industries have evolved entirely
in providing outsourcing needs. One of the major reasons why a company hires a
third party service provider is to control capital costs. Outsourcing allows avoiding
large expenditures and converts fixed costs into variable costs which releases
capital for other investments in the business. In this case, the firm attracts more
investors since it is efficient enough to pump more capital into directly revenue-
producing activities.
Outsourcing reduces labor costs. Hiring and training staff for short term
and one-time projects can be very expensive. Also, temporary employees are not
motivated in their best terms and more often than not, don’t live up to the
expectations of the enterprise. Outsourcing lets the human resources to focus on
the departments where employees are needed most.
Increasing efficiency is also a factor of outsourcing. Companies that give
attention to all aspects of the business including research development,
marketing and distribution expenses competes better in the market. Thus, having
an outside firm that provides other services which the enterprise cannot handle
anymore gives an important advantage over competitors.
Starting a new project quickly is also a benefit of outsourcing. Hiring and
training competent employees for a certain project would involve a lot of time and
money. However, if an enterprise hires an outsourcing firm that specializes that
kind of project such as building a series of distribution centers, they would start a
project right away and even simultaneously with a much easier start-up process.
Moreover, a certain amount of risk is being reduced in outsourcing. Every
business involves taking risk because of competition, government regulations,
financial conditions and market change. But, outsourcing providers that are
experts in some areas of the enterprise world manages the risk for the
contracting firm and eventually lessen the chance of failure.
But the most important aspect of outsourcing is that an enterprise focuses
more on the core of the business. Having a hand from a third-party service
provider reduces the transitional distractions. Outsourcing helps to shift the
business’ attention from peripheral activities towards the priority of giving better
service to customers.
However, the challenges of outsourcing come when the work is being
done offshore or in a different country. Language barrier, cultural variations and
time zone differences complexes the process of outsourcing.
No matter what the reasons of a company for outsourcing, the idea of
having third-party providers is ingenious. It’s an undeniable fact that outsourcing
gives a lot of benefits to the enterprises. The growth and development of the
organization is boosted by having the idea of outsourcing.
References:
Outsourcing, September 2008, http://www.articlesbase.com
The Benefits of Outsourcing, http://www.outsource2india.com
Dennis, Geroge, The true benefits of outsourcing, http://www.fastcompany.com
Credit:ivythesis.typepad.com
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