Outsourcing is a planned decision taken by a company to reduce the cost and increase productivity by hiring an individual or any another company to complete the task.It handle the operations and provide the services that employees did within the company previously. In simple words,It is the practice of getting specific job functions done outside a company. This business function process also called contracting out.
It can help various businesses or companies to reduce the cost of labor. When a company uses outsourcing, they take help of an outside organization for completing specific tasks.
The external organizations generally establish the various payment structures with their employees than the third company, allowing them to finish the work for less money. This finally allows the company that chooses to outsource to reduce its labour cost.
Businesses can also avoid expenses connected with overhead, technology, and equipment. Apart from saving costs, many different businesses or companies can make an outsourcing approach to better focus on the key aspects of the business.
Outsourcing noncore activities can improve productivity and efficiency because of another entity completes these smaller tasks better than the firm. These plans may also lead to faster turnaround times, increased competition within an industry, and the cutting of operational costs.
The Evolution of Outsourcing
Until the industrial revolution, the idea of hiring third party in certain company areas didn’t dominate the business sphere. Companies started third party services because the rate of production had increased quickly, and businesses needed help, which drove many to admire what else could be outsourced.
Through the 1990s, companies started to focus more on cost-saving strategies. This involves necessary functions to run a company but not clearly related to the core business. Companies began to contact developing specialized companies to perform third party services such as human resources, accounting, internal mail distribution, maintenance, and security.
Today various types of outsourcing can increase the productivity of businesses and reduce costs. Some of the main categories include:
- IT Outsourcing
- Manufacturing Outsourcing
- Process Outsourcing
- Operational outsourcing
- Project Outsourcing
- Professional Outsourcing
Companies worldwide give specialized services to help companies with their outsourcing in different countries is known as offshoring. In general, with more types of services on the growth, Outsourcing has continued to increase in popularity as a company view to reduce the cost of business while improving performance.
It involves legal, Informational technology, purchasing, administrative, and other specialized services support. It is likely possible for high-cost savings. The company pays only for services provided to high-quality resources, which crucially reduces overhead costs (Both fixed and Variable costs).
IT outsourcing is one of the essential services today, It includes contracting with an outside organization to take care of all the parts of its business need, ranging from maintenance to software development.
Today, most businesses or companies need IT, or at least they work with technology on a few levels, by which it is making a generally outsourced department. It finishes up for living less expensive for many companies to contract a third-party IT management team than to build an in-house team. The businesses will frequently use IT outsourcing to store and manage the data, but various companies outsource a piece of IT functions.
Manufactures outsourcing services are often quite in a specific industry. For example, an automobile manufacturer has an arrangement of outsourcing for constructing a building and installing the windows in all models.
Outsourcing arrangements can occur in vital cost reductions in faster assembly time. The main risk of this type of outsourcing would be quality problems only and possibly delay in the line of production. Manufacturers consider the outsourcing which is essential for small and mid-sized enterprises to survive in today’s competitive market.
Today, it is simple to outsource certain operations related to other businesses or companies specializing in particular services. For example, a baker shop can outsource with a courier company like UPS or FedEx to deliver the packaged cake. While reducing a time Such contract would include, delivery timelines details, customer contacts, price, focus on company strength, and improve customer service. Process outsourcing means the practice of controlling public sector services like police forces, armed forces, fire etc for profit companies.
Sometimes companies have difficulty managing their projects or even finishing a piece of a specific project. So that’s why most companies will outsource the project to another qualified company that manages the various projects. In some cases, the company may not have enough in-house people with the necessary skills to work on the project. It may also cost high as compared to third party company.
Advantages and Disadvantages of Outsourcing
1. It lowers the operating labour’s both fixed and variable cost.
2. More focusing on the core competencies of the company. Hence improving its competitive benefits by deploy time-consuming processes to external companies
3. Clearing internal resources and using them for other objectives.
4. Decreasing risk by sharing risk with outside parties and creating meaningful partnerships.
5. Improving efficiency and flexibility by assigning hard management and control responsibilities to outside companies.
1. Some Third party companies may enforce the unexpected costs or hidden cost by making long contractual agreements with lots of fine prints.
2. These companies lack quality control as they usually focus on profit rather than doing the job.
3. Risk of losing sensitive data and confidentiality.
4. Loss of management control and inability to control operations of activities or processes that are outsourced.
Various companies outsource today because some companies don’t have enough in-house people to complete several projects, so they hire individuals or companies. It helps you to save time and cost and increases the efficiency and flexibility of outside companies. Consider various areas where you get the advantages from third party companies and explore some other outsourcing services that may benefit your company and help to boost your company’s productivity. Take the strategic and smart decisions while hires any third party company.