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Why Outsource?

Outsourcing means you are handing over some tasks that you either did in-house earlier or don’t have the expertise to complete on your own in time and within budget. So time constraints, expertise constraints and cost savings are usually the main reasons that work gets outsourced to other external entities who are specializing in the same operations.

The decision to outsource is often made in the interest of lowering firm costs, redirecting or conserving energy directed at the competencies of a particular business, or to make more efficient use of labor, capital, technology and resources.

Organizations that outsource are seeking to realize benefits or address the following issues:

  • Cost Savings
  • The lowering of the overall cost of the service to the business. This will involve reducing the scope, defining quality levels, re-pricing, re-negotiation, cost re-structuring. Access to lower cost economies through offshoring called "labor arbitrage" generated by the wage gap between industrialized and developing nations.

  • Cost Restructuring
  • Operating leverage is a measure that compares fixed costs to variable costs outsourcing changes the balance of this ratio by offering a move from variable to fixed cost and also by making variable costs more predictable.

  • Improve Quality
  • Achieve a step change in quality through contracting out the service with a new Service Level Agreement.

  • Knowledge
  • Access to intellectual property and wider experience and knowledge.

  • Contract
  • Services will be provided to a legally binding contract with financial penalties and legal redress. This is not the case with internal services.

  • Operational Expertise
  • Access to operational best practice that would be to difficult or time consuming to develop in-house.

  • Staffing Issues
  • Access to a larger talent pool and a sustainable source of skills.

  • Capacity Management
  • An improved method of capacity management of services and technology where the risk in providing the excess capacity is borne by the supplier.

  • Catalyst For Change
  • An organization can use an outsourcing agreement as a catalyst for major step change that can not be achieved alone. The outsourcer becomes a Change Agent in the process.

  • Reduce Time to Market
  • The acceleration of the development or production of a product through the additional capability brought by the supplier.

  • Commodification
  • The trend of standardizing business processes, IT Services and application services enabling businesses to intelligently buy at the right price. Allows a wide range of businesses access to services previously only available to large corporations.

  • Risk Management
  • An approach to risk management for some types of risks is to partner with an outsourcer who is better able to provide the mitigation.