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middle Resource Center 17 Jul, 2019 


Outsourcing isn't what it used to be

"If you don't shape up, I'll outsource your position."

"Our custodial service would be more cost effective if it were outsourced."

"Let's outsource our payroll services to get rid of the headache once and for all."

"If we outsourced our technology function, we'd gain the knowledge we otherwise lack."

Outsourcing is a business practice that conjures up different images and feelings for many people. To some, outsourcing is a threat. To others, outsourcing is the answer. For all, outsourcing is an evolving practice that just isn't as simple as it used to be. Today, almost any business practice and position can be outsourced.

Outsourcing is a term that literally means subcontracting work to outside companies. Outsourcing at personal level is being practiced for many decades. It is common practice amongst farmers to get land filled through another farmer who brings his own equipment and animal. Lady employees have been practicing outsourcing for a long time. Maid is hired for completing day-to-day mundane jobs involved in running a household, so that they can pursue their career or profession. Outsourcing as a business practice is relatively modern. In the old days (1970's), companies outsourced custodial and grounds maintenance services. In the 1980's Webster's Dictionary formalized the term (1982), and many companies began outsourcing clerical work, such as secretarial help and payroll services. It was during the '80s that outsourcing began to be viewed by employees as a threat. This decade, the '90s, outsourcing is more of a strategic management issue.

Many companies across the globe and in India have outsourced their technology, accounting, and payroll & employee benefit administration activities. While outsourcing is still a matter of cost efficiencies and material effectiveness.

Research from Dun & Bradstreet and The Outsourcing Institute shows that companies are likely to outsource the following services: technology (30%), human resources (16%), marketing and sales (14%), and finance (11%). Other sundry services comprise the remainder. Manufacturing account for two-thirds of all outsourcing.

The reasons companies outsource:

  • Improve company focus,
  • Gain access to world-class capabilities,
  • Manage difficult or out-of-control functions,
  • Reduce or control operating costs, and
  • Gain resources not otherwise available.

Today, outsourcing is recognized as a means to achieve growth. Research says companies that outsource are more successful on average than companies that don't. Perhaps increased profitability results when owners and management stop focusing on limited-value, in-house problems and start focusing on sales opportunities or operational issues limiting growth.

How many times have you as an owner or manager spent countless hours with others in the management team arguing about this or that piece of software... or hardware? or financial controls. Too much time on inputs means too little time on outputs. Turf, politics, and personal agendas get in the way. Next thing you know, one or two years have gone by with 100 or more hours invested in a project, and nothing has actually been done. Worse, often the "right" (or compromise) solution doesn't work at all, creating a larger problem. A skilled outsourcing organization can help you define output, provide the necessary expertise, and execute cost effectively, on time.

Outsourcing is not a panacea. It can be tough work requiring a company to be prudent, selective, patient, and willing to change. The main factors involving successful outsourcing include (1) selecting the right vendor for your needs, (2) the company's ability to specifically define what needs to be accomplished within strict time and resource parameters, and (3) the vendor's understanding of the company's specifications. More, successful long-term results require true partnering with a vendor. Quick, "in and out" relationship changes can produce disastrous results that end up costing the company a lot.

Outsourcing continues to evolve as companies hunt for advantages, talent, skills and answers. Bottom line issues for now: What are your requirements, and which vendor can provide the extra flexibility, knowledge, fractional purchasing power, and on-call capacity to achieve those requirements?

For identifying Business Process to be outsourced apply following three questions test to each Business Process

  1. If you were to set up new business today, would you handle this process internally?
  2. Would other entities outsource their Business Process to you?
  3. Would you expect next CEO of your organisation to come from this Business Process area?

If answer to all the three questions is negative, then that Business Process can be definitely outsourced profitably.


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