What is Outsourcing?

Outsourcing

The business world is getting more and more complicated every day. The number of tasks that need to be completed by each department gets higher and higher. Outsourcing is a concept that was born to help the increasing number of tasks and in reducing the increasing cost of the organizations.

As the concept of outsourcing is continuously becoming a necessity in the business world, it is important to understand the idea behind the concept of outsourcing. Outsourcing is hiring a third-party to perform a specified set of tasks or to provide a specified service or to perform a specified operation/s for the organization.

The third-party who will be involving with the organization will have their own employees and their own systems that will fulfill the organizational requirement. The outsourced activities can be performed either at the organization’s premises or the third-party’s own premises.

The concept of outsourcing was initially identified as a business strategy in 1989. in this modern era, mainly aiming to reduce the costs of the organization, many businesses are outsourcing one or more business activities. The modern practice is to outsource the business processes to the countries with comparatively low labor costs. Even though this creates issues such as loss of domestic employment opportunities, it is also argued that outsourcing the processes with higher costs will help the organizations to manage and allocate the resources more effectively and efficiently.

The organizations usually operate with two different operations types: Front office operations and Back office operations. When outsourcing activities, the most commonly used method is to outsource one or more back-office operations. Since the front-office operations play a major role in attracting the customers to the organization, many organizations run the front-office operations with their internal employees.

04 Most common outsourcing areas

There are four most commonly identified sectors in any organization that tends to outsource often.

  • Manufacturing Outsourcing
    Outsourcing the manufacturing process is one of the most effective ways of reducing costs and workload. This can be done by outsourcing the manufacturing activities to the smaller companies who are incapable of finding sufficient resources and to capture the market on their own. The garment industry is a major example of this type of outsourcing.
    Another way of outsourcing the manufacturing process is by outsourcing the manufacturing process to a company with higher technology or higher capabilities. This will increase the quality of the product or the service.
  • Operational Outsourcing
    Outsourcing of operational activities can be mostly seen in the manufacturing industry. It is mostly used to reduce the machine repairing and maintenance costs of the production process. Apart from that, it gives the organization to get the service of the person/team who are specialized in the area.
  • Process specific outsourcing
    This type of outsourcing is usually used when a special set of skills is required for a specific process. rather than spending more on acquiring the skills, the organization can simply outsource the process to a third-party who already has the required skill. By doing this, the organization can concentrate on its main operations while having an outsourced team to perform the process-specific activities.
  • Professional services outsourcing – This type of outsourcing is the most common type of outsourcing. These professional services maybe not be needed for the organization every day. This gives the opportunity for the company to outsource the activities whenever necessary and keep the overhead costs lower. Outsourcing the departments such as legal, Human resources and development, accounting and finance comes under professional services outsourcing.

Outsourcing can be mostly seen in Information technology, Manufacturing, Professional services, and special projects. Even though there are many advantages as well as disadvantages of outsourcing, a huge tendency of outsourcing can be seen worldwide.

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