Monday, December 18, 2006

What is Outsourcing?

Outsourcing is basically a method of carrying out a definite task without completely relying on the original companies resources. It can be a development of a product or can also be acquiring knowledge and technology.

In plain English, outsourcing is the process by which a parent company hires services / technology from firms or individuals outside itself to carry out a particular task. The parent company will not disturb its internal schedules and resources, but utilize the expertise, knowledge and resources of outside bodies to carry out the job. The important point to note is that, the production or development job is only transferred to the foreign body, and the responsibility of the job is with the parent company itself.

Why would anyone outsource?

There can be numerous reasons behind the decision to outsource a job to foreign bodies.

One of the main reasons why a company decides to outsource a particular work is because of inadequate resources within it. Sometimes situation arises when manpower cannot be diverted to an urgent work. One of the solutions to this situation is to increase manpower or to hire manpower for a short period of time. The risk factor is involved, as the company does not clearly know the performance record of hired manpower. But if we have a publicly accepted performance record of a specialist company who is wiling to take up the job, taking the responsibilities of newly hired manpower and shedding additional revenue on them seems a bad idea. This situation normally results in outsourcing, to avoid bottlenecks in the parent company's performance.

Inadequate knowledge and technology can be another reason why a company decides to outsource a work to some specialist firms, who can provide it. As it is clear, someone more skilled and someone who does the job on a day-to-day basis can complete a job in less time and money than someone new to the field.

Reduced budgets and increased expenses in operational costs can result in a decision to outsource. There can be situations when carrying out a project results in a loss. This occurs when expensive tools have to be purchased or when new knowledge or technology has to be purchased to carry out a job. The easy solution to this problem will also be outsourcing the work to skilled small-scaled businesses, which can complete the job in lesser cost and time, eliminating the expenses of purchase of new tools or technology. The huge reduction in pay rates while outsourcing to countries like India and Russia where loads of technically sound resources are available for a reduced pay rate, is one of the best reasons to outsource

Merits of Outsourcing
One of the good things about Outsourcing is that the parent company gets to concentrate on strategic issues rather than take up the hassle of specialized jobs. Another important aspect is the availability of top-notch resources, which are used by the parent company only when they need them. The reduction in operational costs is yet another huge positive aspect of outsourcing.

Points to Keep in Mind after the Decision of Outsourcing and Before Selecting Your Partner

Successful outsourcing is a result of good management.
▪ Make sure you have these points cleared before you outsource your work to foreign companies.
▪ Always study your future partner prior to fixing the deal. Talk to their past and present clients, study their history and present infrastructure before taking the leap.
▪ Once you fix the deal, the vendor is part of your company. Never treat him as an alien body.
▪ Clearly define the tasks and give a concrete idea about the deliverables. This will reduce the confusion and will make sure that the vendor knows what he needs to deliver.

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