Outsourcing is contracting with another company or person to perform a particular function. Almost all organizations outsource in some way. Typically, the function being outsourced is considered nonessential to the business. An insurance company, for example, could outsource its cleaning and landscaping operations to companies that specialize in those types of work as they are not related to insurance or business strategies. The external companies that provide outsourcing services are third-party providers, or as they are more commonly called, service providers.
Although outsourcing has been around as long as job specialization has been around, in recent history, companies began to employ the outsourcing model to carry out narrow functions, such as payroll, billing, and data entry. Those processes could be performed more efficiently, and therefore more cost-effectively, by other companies with specialized tools and facilities and specially trained personnel.
In 2014, the global outsourced services market size was US $ 104.6 billion, the highest point to date.
Today, outsourcing takes many forms. Organizations still hire service providers to handle various business processes, such as benefits administration. But some organizations outsource entire operations. The most common forms are information technology outsourcing (ITO) and business process outsourcing (BPO).
In 2014, the global BPO industry revenue was US $ 28.5 billion, and the global ITO industry revenue was US $ 76.1 billion.
Business Process Outsourcing encompasses call center outsourcing, human resources outsourcing (HRO), finance and accounting outsourcing, and claims processing outsourcing. These outsourcing deals involve multi-year contracts that can run into the hundreds of millions of dollars. Often times, the people who do the work internally for the client company are transferred and become employees for the service provider. Dominant outsourcing service providers in the information technology outsourcing and business process outsourcing fields include IBM, EDS, CSC, HP, ACS, Accenture, and Capgemini.
Main reasons for outsourcing.
Some agile companies that are short on time and money, such as startup software publishers, multisourcing, using both in-house staff and the service provider, to speed time to market. They hire a multitude of outsourcing service providers to handle almost every aspect of a new project, from product design, software coding, to testing, to localization, and even to marketing and sales.
The outsourcing process generally encompasses four stages: 1) strategic thinking, to develop the organization's philosophy on the role of outsourcing in its activities; 2) evaluation and selection, to decide on the appropriate outsourcing projects and potential locations for the work to be done and the service providers to do it; 3) development of the contract, to prepare the terms of the legal agreement, prices and service level; and 4) the outsourcing of management or governance, to refine the ongoing work relationship between the client and outsourcing service providers.
In all cases, the success of outsourcing depends on three factors: executive level support in the client organization for the outsourcing mission; extensive communication with affected employees; and the customer's ability to manage their service providers. Outsourcing professionals in charge of both client and vendor side work need a combination of skills in areas such as negotiation, communication, project management, the ability to understand the terms and conditions of contracts and service level agreements., and, above all, the willingness to be flexible as business needs change.
The challenges of outsourcing are especially acute when the work is done in a different country (offshored), as this implies linguistic, cultural and time zone differences.
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Del Peso Navarro, E. (2003). Computer outsourcing manual: (analysis and contracting): contract model. Díaz de Santos editions.
Fórneas Carro, JR (2008). Outsourcing.: Get the most out of your suppliers. Netbiblo.
