SevenOutsource

Outsourcing is subcontracting a process, such as product design or manufacturing, to a third-party company. Outsourcing, in literal terms, means sourcing from outside. The decision to outsource is often made in the interest of lowering cost or making better use of time and energy costs, redirecting or conserving energy directed at the competencies of a particular business, or to make more efficient use of land, labor, capital, (information) technology and resources. The term is increasingly used to refer to sub-contracting of a set of functions or processes by one firm to another, or to a group of individuals.

Outsourcing became part of the business lexicon during the 1980s. It is essentially a division of labour. Outsourcing also allows companies to focus on other business issues while having the details taken care of by outside experts. The latter organisation is often in another physical location, or another country altogether. In some cases, the entire information management of a company is outsourced, including planning and business analysis as well as the installation, management, and servicing of the network and workstations.

Outsourcing is being pursued as an active business strategy in the current economic scenario, since it enables a firm to focus on core-competency areas. It is an arrangement in which one company provides services for another company that could also be or usually have been provided in-house. It also frees the firm from resource and labour intensive functions, which are now performed by trained personnel at much lower costs. The specialized company that handles the outsourced work is often streamlined and often has world-class capabilities and access to new technology that a company couldn’t afford to buy on their own.

Outsourcing is a trend that is becoming more common in information technology and other industries for services that have usually been regarded as intrinsic to managing a business. The processes or activities that are being outsourced could range from customer service and telemarketing, to IT management, software development, market research and even financial portfolio management. Outsourcing takes place when an organization transfers the ownership of a business process to a supplier.

The key to this definition is the aspect of transfer of control. This means that a large amount of resources and attention, that might fall on the shoulders of management professionals, can be used for more important, broader issues within the company. Domestic outsourcing refers to outsourcing where both the primary company and the independent contractor or subsidiary are located in the same country. This definition differentiates outsourcing from business relationships in which the buyer retains control of the process or, in other words, tells the supplier how to do the work.

One of the main reasons for outsourcing is to reduce costs but it is not always necessary to outsource work overseas to reduce costs. It is the transfer of ownership that defines outsourcing and often makes it such a challenging, painful process. In outsourcing, the buyer does not instruct the supplier how to perform its task but, instead, focuses on communicating what results it wants to buy; it leaves the process of accomplishing those results to the supplier. Plus, if a company is looking to expand, outsourcing is a cost-effective way to start building foundations in other countries.