According to Investopedia, outsourcing is a term for
strategically using external resources to perform traditional activities
related to a business. Business partnerships are created when companies
contract out operations to service providers. Socrates Vasiliades tax says originally outsourcing was only used
in situations where a company was incompetent internally. Because many
organizations were not completely self-sufficient, they were forced to
outsource some operations. Outsourcing hit a stride in the 1990s, which was
fueled by organizations focused on cost-saving strategies. They began to
outsource support services that were necessary to operate the company but not
associated specifically with the core business. These included services such as
accounting, data processing, security, and human resources.
Today, companies may choose to outsource for a variety of
reasons. Wikipedia suggests, the most common incentive to outsource is to lower
operational and labor costs associated with the business. When this is done
properly it can have a big impact on a company's revenue and can also provide
considerable savings. By doing this it can also free internal resources to be
used more effectively. A company may also decide to outsource in order provide
a higher focus on core business processes.
When these functions are outsourced it can help to mitigate
risk of the business. Minimizing risk is a popular reason as to why companies
outsource today. By outsourcing the operation, it is completed in a facility
more specialized to that specific product. It also frees the business from
managing another part of the process. Socrates Vasiliades tax offers companies the opportunity to gain knowledge on global
scale and can be looked at as a form of networking. Opportunities in new market
areas can arise as a company expands and begins to outsource in different
areas. The operations that a business decides to outsource depends on the
company's vision and motive for outsourcing.
There are several factors that contribute to successful
outsourcing. Goals and objectives of a company must be clearly understood. They
must define the overall purpose of the outsourcing and what their objective is.
The internal and external capabilities of the business must be recognized. Cost
and performance are evaluated in order to see what operations are worth keeping
internal and which ones are worth outsourcing. Selecting the appropriate vender
is also an important factor that can provide an ulterior motive. An example of
additional motivation could be selecting a vendor that is in a location you are
looking to expand to. Another could be selecting an environmentally friendly
vendor to improve a company's image. After outsourcing, it is important to
manage the created relationship on a regular basis to ensure work is being done
to satisfaction.
Strategic partnerships are beginning to grow in popularity.
It was originally uncommon for an organization to outsource core competencies
because these are the operations that make a company unique. However, the focus
of many companies today is less on ownership of these parts and more on
functionality and service. If they are able to get the job done with better
efficiency and at a lower cost, it is an easy decision to outsource the
function.
