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.