What is Outsourcing?

Posted on June 28, 2013

Is your business looking for skills or expertise that doesn’t exist within your organization? If yes, then the answer to your problems is outsourcing.  The meaning of outsourcing is simple – going OUT to discover the SOURCE of what you need.  Most businesses nowadays outsource in order to address the needs of their customers, both external and internal. While external customers ultimately buy a company’s services or products, internal customers are a firm’s own shareholders and employees. With the concept of outsourcing a company can obtain payroll services as well as the production of machine parts.

How did outsourcing begin?

Outsourcing can trace its roots back to large manufacturing organizations which engaged outside companies to develop the special components that they required for their products. For instance, in the past, automakers hired external companies to develop components for their air conditioning units, sunroofs and sound systems. In some special cases, automakers even moved entire factories to foreign locations, where they could access special skill sets at a lower cost.

However, in recent years, there has been a big shift towards Service Outsourcing, which refers to the practice of companies engaging outside business firms to help them with specialized work.

The many advantages of outsourcing

Outsourcing has become immensely popular because of the many advantages that it offers. For instance, outsourcing enables a company to find and hire the best experts in the market for specialized work. Outsourcing also helps a company to free up their internal resources for capital improvements and also keep more cash on hand. Outsourcing is scores of times cheaper when it comes to operating cost or salaries. With outsourcing, a company can enjoy better benefits and reduce risk at the same time.

Outsourcing gives businesses the freedom to focus on their core competencies without any distractions from their supporting or ancillary functions. With outsourcing, there also comes increased speed to market and flexibility. At times, it is more efficient and quicker to engage an external specialist to do something that it is to bring your own business firm up to speed.

Popularly outsourced service functions

Here is a list of the most popularly outsourced service functions:

This list shows how outsourcing has impacted nearly every sector in the business world. Research surveys have shown that every business firm, no matter the size, has one or more of these business functions.

Does outsourcing have disadvantages?

Yes, outsourcing does have its share of disadvantages. A company may have lesser control of the service/product that it’s purchasing and this may pressurize the relationship between the company and its customers. Language barriers, lack of communication and security issues are some of the other challenges of outsourcing. However, these problems can be easily addressed with the right outsourcing service provider.

Do you think your company should outsource? If yes, which business function would you consider outsourcing? Share your thoughts and views with us, by leaving a comment in the box below. We, at Flatworld Solutions love to hear from you!

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