The world has come a long way with respect to development in business world. The economy has changed its face from a simple barter system taking place only in the surroundings of human habitat to current day complex model of global economy that deals with several nations working together and trying to compete to be crowned as victorious. The ever increasing human quest for succeeding and to be best has made changes to the world beyond human imagination.
New ways of accomplishing a task emerges daily and if you do not keep up with it, it might just turn out that the way you were spreading jam on your toast might too out dated. Thus, in the quest to achieve excellence humans started develop new business methods. Things started progressing from simple functioning business to the development of assembly line in production to the industrial revolution evolving to internal partnerships slowly leading to global partnerships. Since the boom in global economy and trying to get ahead companies use different methods to succeed.
The key goal to succeed is to maximize your revenues and the key to do so is to minimize your costs. Some of the methods include: shifting your production plants, maximize your resource allocation, reengineer the process that is not working, change management, etc. Ever company wants to make money so they look for ways to minimize costs and thus look at outsourcing. In recent years outsourcing has emerged as one of the methods to lower the cost of an industry. Outsourcing is defined as sub contracting a process or service to a third party company or a vendor rather than producing it yourself.
There are different types of outsourcing: outsourcing your production (producing some of your products outside the company that would cost more if you produce it), outsourcing your services (customer service, human resources, benefits, etc. ), outsourcing knowledge (implementation of new software, systems, etc) and finally data outsourcing. These are just a few examples of products and services that can be outsourced to gain benefits. In this paper we would like to explore as to why a company might decide to outsource, what are some of the benefits of outsourcing; Are there any disadvantages to the process.
Outsourcing is not a process that is implemented overnight. In order to successfully outsource, a company has to go through some painful steps. Many companies would tell their horror stories Outsourcing should be approached with caution. Here are the steps, Decision to outsource (what needs to outsource and business justification as to why), finding the supplier, negotiations (to convert proposals into contracts), contract finalization (bind this with 7 myths), transition, transformation, ongoing delivery, termination or renewals. If you find that something can be done a great deal cheaper outside, ask why.
Consider your methods anew. Also write more advantages If outsourcing is done in a well thought out manner the benefits are immense. One of the primary reasons for manufacturing companies to outsource is lower cost of production. This could mainly happen due to global economy and lower currency exchange rates. When you outsource your services that you are not in the business of (e. g. Human resource is an external service for a business that primararily is involved in production of goods) you cost analysis could change and would give you a better view of your costs.
The cost of the service instead of a variable cost it becomes fixed cost. Many times you would save yourself from the cost of gaining knowledge that is required solely for the development of a new process. When doing this you expose your self to the risk that you may not be an expert on the subject. A great example of this has recently boomed are software giants providing developers with SDKs. Apple and Facebook instead of developing application themselves are "outsourcing" it to users allowing them to customize it to their flare.
This way they are getting free development, the clients are happy as their needs are satisfied, they are getting brand loyalty all at a very minimal cost compared to that they would have spent if they were to do it themselves. For customer service business if you outsource globally you could provide support to your clients around the clock while saving on cost of providing support at higher expense. As noted earlier that if the process of outsourcing is not carried out carefully it could turnout into your nightmare. Here are some common myths that are attached with outsourcing.
We can have it all: When outsourcing a lot of companies tries to achieve all and forget that when outsourcing while achieving one there's a trade-off in the other objective e. g. to boost effectiveness you have to factor in that cost will increase. Outsourcing Services is Like Buying Commodities: Many costs are associated while outsourcing such as transaction costs, vendor costs, and operational cost. We need an Ironclad Contract: Instead of writing a lengthy contract more attention should be concentrated on roles and responsibilities of each party involved.
Instead of controlling the vendor, control the process. Contracts Don't Matter: Needless to say ignoring a contract does not help either. A contract should be used to share the vision and relationship between the client and service provider. Vendors Are Insurance Companies: There should be well defined standards of service and penalties incase of failures. The clients should not hold the vendor for a full liability when only part of the full product is provided as a service.
It's Not Our Headache Anymore: While outsourcing a process does not mean you do not have to worry about it any more, the clients should still have the knowledge of the process and hot it fits in the company's picture. Such knowledge could come in handy if in future you decide to bring the process in-house. Our First Failure Should be Our Last Attempt: As it is well said, If at first you don't succeed try again. Many clients take the first failure as a sign to stop instead of improving the process. Experience with the vendor might correct a lot of mistakes.