Outsourcing has seen a lot of press recently. Some look to outsourcing as the savior of their company; others see outsourcing as an evil job-killing tactic of management. Before you start to evaluate if an outsourcing strategy is right for your company, you need to understand what it is and what it is not.
Outsourcing DefinedOutsourcing is any task, operation, job or process that could be performed by employees within your company, but is instead contracted to a third party for a significant period of time. Hiring a temporary employee while your secretary is on maternity leave is not outsourcing. In addition, the functions that are performed by the third party can be performed on-site or off-site.
The most common model of outsourcing that is in the news today refers to jobs that are being sent over seas to countries like India or China. This is more commonly called offshoring. Examples include telephone call centers, tech-support and computer programming. More common examples that are not going overseas are janitorial services, after hours answering services and security services.
Why outsourcing?There are many reasons why a company may choose to outsource a particular function of their business. Most managers have the end-result-in-mind that they are going to save time and/or money. Other reasons include:
Resource Shortages Relieved by Outsourcing
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 (e.g. engineers), availability of material (e.g. petroleum or minerals) and a labor force at a level and price that will offset the cost of higher prices alternatives.
Outsourcing Provides the Ability to Concentrate On the Core Business
Some necessary, but peripheral operations are outsourced most frequently. This gives the managers the ability to concentrate on the core business issues instead of getting distracted by required, yet minor matters. A good example is a major hospital in our area that outsources its security operations to a third party company specializing in security.
Outsourcing Yields Cost Savings
The prices of labor and/or materials keep increasing and competition keeps forcing prices lower. If there is an outsourcing solution that can save your company money and overcomes the disadvantages of outsourcing, these areas should be investigated.
Outsourcing Provides 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. Example: A business brings in extra accountants during tax season and when being audited by the holding company that owns the business.
Reduce Overhead Costs Through Outsourcing
Some functions require a large outlay of money just to get started. This expenditure could be avoided by contracting with a third party. For example, expanding your call center’s capacity to the point where it exceeds the capabilities of your telephone system.
Common Outsourced AreasAlthough many areas and functions are outsourced, here are some of the frequently outsourced areas:
- Information Technology Functions
- Network and Telecommunications
- Human Resources and Insurance Administration