So, what is outsourcing? Outsourcing is contracting with another company or person to do a particular function. Almost every organization outsources in some way. Typically, the function being outsourced is considered non-core to the business. An insurance company, for example, might outsource its janitorial and landscaping operations to firms that specialize in those types of work since they are not related to insurance or strategic to the business. The outside firms that are providing the outsourcing services are third-party providers, or as they are more commonly called, service providers.

Although outsourcing has been around as long as work specialization has existed, in recent history, companies began employing the outsourcing model to carry out narrow functions, such as payroll, billing and data entry. Those processes could be done more efficiently and therefore more cost-effectively, by other companies with specialized tools and facilities and specially trained personnel.

Currently, outsourcing takes many forms. Organizations still hire service providers to handle distinct business processes, such as benefits management. But some organizations outsource whole operations. The most common forms are information technology outsourcing (ITO) and business process outsourcing (BPO).

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 hundreds of millions of dollars. Frequently, the people performing the work internally for the client firm 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.

Some nimble companies that are short on time and money, such as start-up software publishers, apply multisourcing -- using both internal and service provider staff -- in order to speed up the time to launch. They hire a multitude of outsourcing service providers to handle almost all aspects of a new project, from product design, to software coding, to testing, to localization, and even to marketing and sales.

The process of outsourcing generally encompasses four stages:

1. Strategic thinking, to develop the organization's philosophy about 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 service providers to do it.
3. Contract development, to work out the legal, pricing and service level agreement (SLA) terms.
4. Outsourcing management or governance, to refine the ongoing working relationship between the client and outsourcing service providers.

In all cases, outsourcing success depends on three factors: executive-level support in the client organization for the outsourcing mission; ample communication to affected employees; and the client's ability to manage its service providers. The outsourcing professionals in charge of the work on both the client and provider sides need a combination of skills in such areas as negotiation, communication, project management, the ability to understand the terms and conditions of the contracts and service level agreements (SLAs), and, above all, the willingness to be flexible as business needs change.

The challenges of outsourcing become especially acute when the work is being done in a different country (offshored), since that involves language, cultural and time zone differences.

Benefits of Outsourcing:
Do you want to maximize your revenue and minimize your expenses? Do you want to get access to specialized skills and services? Do you want to concentrate more on your core business? Do you want to save on money, time and infrastructure? If your answer is yes to any or all of the above questions, you might be interested in outsourcing. Outsourcing has several benefits. Outsource and take advantage of the benefits of offshore outsourcing. Read the following benefits of outsourcing to find out more about how outsourcing can give your business a competitive advantage!

• Lower costs due to economies of scale
• Ability to concentrate on core functions
• Greater flexibility and ability to define the requisite service more readily
• Specific supplier benefits. For example, better security, continuity, etc.
• Higher quality service due to focus of the supplier
• Improved internal management disciplines resulting from the exercise itself
• Less dependency upon internal resources
• Control of budget
• Faster setup of the function or service
• Lower ongoing investment required in internal infrastructure
• Greater ability to control delivery dates (e.g.: via penalty clauses)
• Lack of internal expertise
• Increase flexibility to meet changing business conditions
• Purchase of industry best service.
• Improve risk management.
• Acquire innovative ideas
• Increase commitment and energy in non core areas
• Improve credibility and image by associating with superior providers
• Generate cash by transferring assets to the provider
• Gain market access and business opportunities through the supplier's network
• Turn fixed costs into variable costs

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