Different firms have different specific business situations that call for outsourcing. Some organizations take to outsourcing just because they are hard pressed for time, or because they believe outsourcing can save them money. Careful planning and assessment of one’s requirements are absolute musts for any organization before it goes for outsourcing. Here are some of the ‘right reasons’ for which a business may consider outsourcing.
Reengineering at Lower Risk
When a firm goes for reengineering, it is looking to improve crucial performance aspects like cost, quality, speed and services. However focusing on efficiency can take away resources and attention from the core business needs. If on the other hand these functions are ignored, they result in poor productivity. Outsourcing these non-core functions to a specialist can thus bring the best of two worlds together for the company.
Access to Latest Technologies
There are many outsourcing vendors today that invest in world class technologies, systems and people. These vendors have gained expertise working with many clients facing different challenges. By outsourcing work to such vendors, a firm can access their facilities and expertise without having to purchase them. Here is a clear case for comparative advantage. The personnel the firm transfers to the vendor also benefit with all the training.
When an organization outsources work, it often sells the assets associated with the transferred work to the vendor. This could be equipment, facilities, vehicles or licenses. The vendor uses these assets to manage the services for the client As is evident, this transfer can bring money to the client, depending on the value of the assets thus sold. The sale often happens for book value, which could be higher than the market value.
By outsoucing, an organization can focus its resources on the most crucial aspects of the business at the time. This in turn adds greater value to the most essential of the business activities. This could be building better customer relations, revamping the market strategy or anything that needs more attention in the current phase of the company’s growth.
Outsource Difficult Functions
This one reason is easy to misunderstand. This does not mean that outsourcing is a way to shirk off management responsibilities. When a firm finds a particular area difficult to manage or out of control at the moment, it should first of all analyse the situation and identify the causes. Outsourcing is not an option when the organization cannot identify the requirements, since it cannot state clearly what is needed.
Focus on Core Business
A company can outsource its operational aspects to an expert in the concerned area and give more attention to the core business.
Free up Capital Funds
Many organizations have trouble deciding which areas they should invest more in. Different departments and functions often vie for more resources allocated to them. With outsourcing, the company does not have to purchase infrastructure for non-core functions. Thus it has more capital at its disposal. Outsourcing also benefits the overal financial measurements of the firm as it does not have to show return on equity on capital investments, in non-core functions.
Bring Down Operational Costs
When a company tries to carry out all its activities in-house, it incurs higher expenditure- on everything from research and development to marketing and deployment. These higher costs have to be then passed on to the customer. The outsourcing vendor can often do the work for a much lower cost based on either economy of scale or other advantages. This in turn reduces the buyer’s costs and facilitates competitive advantage.
Investments are always risky for an organization. Rapid changes in the market, competition,legal regulations, financial situation and technology can all influence where the organization needs to focus its resources. It can be quite tricky to keep pace with these changes. Tying up with an outsourcing vendor who has already made the investment could thus be the best bet. The shared investment thus reduces the risk for the individual company.
Lack In-House Resources
Sometimes an organization may not have at its disposal the necessary resources for a particular function. Building the required resources from the scratch takes considerable time and money while the same function can be performed more easily by outsourcing. A start-up organization, a new division, expansion into a new geographical territory etc are such cases.
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