WHAT IS OUTSOURCING?
Outsourcing is A practice used by different companies to
reduce costs by transferring portions of work to outside
suppliers rather than completing it internally.
There are as many definitions of outsourcing as there
are ways to screw it up. But at its most basic, outsourcing is
simply the farming out of services to a third party. With regards to
information technology, outsourcing can include anything from outsourcing all
management of IT to an IBM or HP, to outsourcing a very small and easily defined
service, such as disaster recovery or data storage, and everything in between.
The term outsourcing is often used interchangeably—and incorrectly—with offshoring,
usually by those in a heated debate.
Offshoring (or, more accurately, offshore outsourcing) is,
in fact, a small but important subset of outsourcing: It's where
a company outsources services to a third party in a country other than
the one in which the client company is based, primarily to take advantage
of lower labor costs. Offshoring has proven to be a political hot potato because
unlike domestic outsourcing, in which employees often have the opportunity to keep
their jobs and transfer to the outsourcer, offshore outsourcing is more likely to result
in layoffs. (For more on the politics of offshoring, see
Prepare Now for Anti-Offshoring Legislation, The Politics Behind Offshore Outsourcing
"OUTSOURCING"
Outsourcing is the business practice of hiring people outside a company to
perform services that traditionally were performed within the company, by the
business’s own employees. Companies typically do this to save money, since it is
often less expensive to pay a third-party provider than hire a full-time
employee.
Examples of jobs that are outsourced range from customer support to
manufacturing to payroll and human resource services.
Many companies have eliminated their entire in-house customer service call
centers and outsourced that function to third party companies located in lower
cost locations.
The practice of outsourcing is subject to considerable controversy in many
countries. One side argues outsourcing has caused the loss of domestic jobs,
particularly in the manufacturing or textile industry.
However, supporters of outsourcing argue that it creates an incentive for
businesses and companies to allocate resources where they are most effective,
and that outsourcing helps maintain the nature of free market economies on a
global scale.
WHY OUTSOURCING
**lower costs (due to economies of scale or lower labor rates)
**variable capacity
**the ability to focus on core competencies by ridding yourself of peripheral ones
**lack of in-house resources
**increased efficiency
**access to specific IT skills
**increased flexibility to meet changing business and commercial conditions
**tighter control of budget through predictable costs
**lower ongoing investment in internal infrastructure
**access to innovation and thought leadership.
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