08/05/2019
What It Is and What It Can Do For You
Outsourcing has seen a lot of press over the years. Some look to outsourcing as the savior of their company, while others see outsourcing as an evil, job-killing management tactic. Before starting it, has to evaluate if an outsourcing strategy is right? It needs to understand what it is and what it is not.
Outsourcing Defined
Outsourcing is the contracting out of any task, operation, job or process that was originally performed by employees within an organisation to a third party for a significant period of time. These outsourced functions can be performed by the third party on-site or off-site.
Why Outsourcing?
There are many reasons why a company may choose to outsource a particular function of their business, which may include:
Resource Shortages
A particularly strong reason to outsource involves a shortage of a critical resource. This can be available employees that possess knowledge in a certain area and an available labour force that possesses a necessary level of expertise at the right price.
Increased Profitability
Outsourcing allows organisations to concentrate limited resources on their core business so they can be more profitable. Organisation will be able to spend more time with their customers so the organization can offer them a higher level of service. Focus on their strengths.
Realignment with Core Business
Some peripheral operations are outsourced frequently. It gives the managers the ability to concentrate on the core business issues instead of devoting resources to areas that may be necessary but are not related to the business' core competencies.
Cost Savings
The prices of labour keep increasing, and competition keeps forcing prices lower. If there is an outsourcing solution that can save company’s money and overcomes the disadvantages of outsourcing, these areas should be investigated.
Business Flexibility
Seasonal or cyclical demands that ebb-and-flow put varying demands on the resources of the company. An outsourcing contract could provide the flexibility needed to stabilize these varying demands.
Reduced Overhead Costs
Some functions require a large outlay of money just to get started. This expenditure could be avoided by contracting with a third party.
Common Outsourced Areas
Although many areas and functions are outsourced, here are some of the frequently outsourced areas:
Finance and Accounting Outsourcing (FAO): The outsourcing of one or more finance and accounting activities or processes.
Human Resources Outsourcing (HRO): The outsourcing of one or more human resources activities or processes.
Business Process Outsourcing (BPO): The outsourcing of business processes; the term is frequently used to describe both HR and F&A outsourcing, and to differentiate those activities from information technology outsourcing.
Information Technology Outsourcing (ITO): The outsourcing of one or more information technology activities or processes.
