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Outsourcing

August 7, 2009
Outsourcing is an arrangement in which one company provides services to another company, the services like Manufacturing, call centers, accounting, IT software development, and so on.
Example like
IBM manages IT services for a company like Xerox.
Capgemini UK plc has signed a six year IT outsourcing contract valued at GBP 23 million with UKbased SHL.
First outsourcing:
  1. Manufacturing outsourcing began in the 1970s and 1980s when U.S. jobs in steel and textiles shifted from the northern states to the southern states.
  1. The use of outsourcing as a management tool used by governments and public agencies has been popularized by books and articles, including Reinventing Government. This book became the bible of municipal management in the early 1990’s.
  1. About 48.4 per cent of the global services providers polled offer both IT and BPO services; 21.6 per cent provide only BPO services and 30 per cent offer only IT services.
  1. The top 100 list includes 43 US and 29 India headquartered companies with four each from China and Malaysia, and three each from Russia and Brazil indicating their emergence as viable outsourcing destinations.
  1. Most of the outsourcing firms are based in the USA, some in the UK or Australia and fewer still in Europe, while most of the outsourced workforce is Asian.
Principle types:
Traditional outsourcing:
The routine jobs or tasks that the staff of the organization does not perform are identified and the service provider usually hires staff for this job.
Greenfield outsourcing:
Without hiring the service provider the organization can directly given to another organization to do the work which was not done in the organization internally.
When will companies need outsource?
  • When you’re losing focus on your core business because you’re too busy handling operations
  • When you’re facing a time, money and human resource crunch
  • When you have a mission-critical project that needs all your time and energy, plus specialized skills which aren’t readily available
  • When you’ve got to be the first into the market to gain the edge
Advantage of outsourcing:
ᅡᄋ Concentration on core business areas
ᅡᄋ World-class technology at lower rates
ᅡᄋ Skilled manpower at affordable prices
ᅡᄋ Increased productivity
ᅡᄋ Beat Competition
ᅡᄋ Tax benefits
Disadvantage of outsourcing:
Outsourcing any part of your business is a risky step, as it means handing over control to another company.
  • It is more difficult to manage outside service providers than managing one¬タルs own employees working possibly in the same building
  • Lack of co-ordination in implementing the projects between on-site and off-shore.
  • These include legal costs related to putting together a contract between two companies and the time spent to coordinating the contract.
  • Outsourcing may include unfavorable contract lengths, loss of competitive edge, problems in contract renewal, and contractual misunderstandings.
  • A possible loss of flexibility in reacting to changing business conditions, lack of internal and external customer focus and sharing cost savings may also be a disadvantage of outsourcing.
  • Another disadvantage of outsourcing can be a threat to security and confidentiality.
Common types:
Information Technology (IT) Outsourcing
Business Process Outsourcing (BPO)
1. Call centers
2. Payroll
3. Finance functions and activities
4. E-publishing
5. Book keeping services
6. Accounting
7. Human resources
8. CAD services
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One Comment leave one →
  1. December 28, 2010 2:42 pm

    really great post. all the information about outsourcing are well organized here. outsourcing is really a good way to reduce staff salary cost .

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