Outsourcing - Overview
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| Commercial and economic activities have always been undergoing innovative transformations from new into newer forms helping business enterprises attain their primary goal of “maximizing profit – minimizing risk.” In recent times, notably after the world has been stormed by the twin forces of IT revolution and economic globalization, outsourcing has emerged out as one of the most powerful business models capable of ensuring a near “win-win” situation for the participating organizations. |
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| The business world today is abuzz with outsourcing ventures creating complex business relationships globally transcending geographical, political and cultural boundaries. It is one of the main factors responsible in making the world a truly global village. |
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| What is Outsourcing? |
| In simple words, outsourcing is "strategic delegation of select in-house non-core business activities to an external business partner willing to offer specialized resources and facilities at lower costs providing better quality output, thus reducing involved risk and cost while at the same time maximizing throughput." |
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| The profitability of outsourcing has helped it spawned into a large number of different forms, few of which are listed below in no particular order: |
- BPO (Business Process Outsourcing)
- HRO (Human Resources Outsourcing)
- KPO (Knowledge Process Outsourcing)
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- ITO (Information Technology Outsourcing)
- CCO (Customer Care Outsourcing)
- RPO (Research Process Outsourcing)
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| Why Outsourcing? |
| Outsourcing offers business advantages just too propitious to be ignored. Listed below are a few of the business advantage outsourcing has to offer, at the least. |
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| Cost advantages: Outsourcing is capable of transforming certain hitherto fixed costs into variable costs. |
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| Developing countries have come to possess vast pool of talented skillful workforce available at considerable lower costs compared to the ones available in developed nations. Globalization has made it amply possible for organizations across the world to exploit tremendous cost advantages through outsourcing. Besides, the comparative establishment, infrastructure and running costs in developing countries are far more less that those in developed countries. |
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| Depending upon the nature and extent of particular business, one can easily expect cost-reduction to be anywhere between 20% and 80% of the existing value. In particular, outsourcing helps, |
- Turn certain fixed costs into variable costs
- Lower costs due to economies of scale
- Obtain cash liquidity by transferring assets to the provider
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| Productivity advantages: Outsourcing conveniently breaks down the business activities into smaller work units which can conveniently increase the overall productivity. Work units can be handled independently and parallelly thereby increasing the productivity considerably in terms of: |
- Increased ability to concentrate on core business areas
- Greater flexibility in defining requisite services
- Improved business management
- Reduced dependency upon internal resources
- Quicker setup of business functions
- Enhanced control on delivery schedules
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| Investment advantages: Since the cost of infrastructure and resources is borne by outsource service providers there is little or no investment liability on the part of outsourcing company. The investment in fixed assets comes down by many times. Apart from running and maintenance costs, outsourcing also reduces capital expenditure, training costs, and welfare expenses. The saving made here can be invested in procuring emerging technology, capacity building and the like. In addition, outsourcing provides, |
- Tighter control of budget
- Improved risk management
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| Competitive advantages: The pre-outsourcing business world had only limited freedom and extent of choice so far as accessibility of resources localized in far-flung areas are concerned. Thanks to globalization backed by IT revolution, resources - each better than the other – are now available for outsourcing. This has created an extremely healthy competitive environment beneficial for the entire business world at large, especially in terms of, |
- Supplier-specific benefits
- Focused service
- Acquiring innovative solutions
- Gain market access and business opportunities through the supplier’s network
- Enhanced ability to scale to match partners’ requirements
- Brand credibility and image improvement through association with superior partners
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| Various feasibility reports have lauded outsourcing to be more beneficial than it apparently appears. If you have not yet considered this option, it is high time you did. |
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