Why Outsource?

There are many reasons why a company may choose to outsource a particular function of their business. Most managers have the end-result-in-mind that they are going to save time and/or money. Other reasons include:

Resource Shortage
A particularly strong reason to outsource involves a shortage of a critical resource. This can be available employees that possess knowledge in a certain area (e.g. engineers), availability of material (e.g. petroleum or minerals) and a labor force at a level and price that will offset the cost of higher prices alternatives.

Ability to Concentrate On the Core Business
Some necessary, but peripheral operations are outsourced most frequently. This gives the managers the ability to concentrate on the core business issues instead of getting distracted by required, yet minor matters. A good example is a major hospital in our area that outsources its security operations to a third party company specializing in security.

Cost savings
The prices of labor and/or materials keep increasing and competition keeps forcing prices lower. If there is an outsourcing solution that can save your company money and overcomes the disadvantages of outsourcing, these areas should be investigated.

Flexibility
Seasonal or cyclical demands that ebb-and-flow put varying demands on the resources of the company. An outsourcing contract could provide the flexibility needed to stabilize these varying demands. Example: A business brings in extra accountants during tax season and when being audited by the holding company that owns the business.

Reduce Overhead Costs
Some functions require a large outlay of money just to get started. This expenditure could be avoided by contracting with a third party. For example, expanding your call center’s capacity to the point where it exceeds the capabilities of your telephone system.
Common Outsourced Areas
Although many areas and functions are outsourced, here are some of the frequently outsourced areas:

* Information Technology Functions
* Network and Telecommunications
* Human Resources and Insurance Administration
* Accounting
* Marketing
* Security

Advantages of Offshore Outsourcing

1. Focus On Core Activities
In rapid growth periods, the back-office operations of a company will expand also. This expansion may start to consume resources (human and financial) at the expense of the core activities that have made your company successful. Outsourcing those activities will allow refocusing on those business activities that are important without sacrificing quality or service in the back-office.

Example: A company lands a large contract that will significantly increase the volume of purchasing in a very short period of time; Outsource purchasing.

2. Cost And Efficiency Savings
Back-office functions that are complicated in nature, but the size of your company is preventing you from performing it at a consistent and reasonable cost, is another advantage of outsourcing.

Example: A small doctor’s office that wants to accept a variety of insurance plans. One part-time person could not keep up with all the different providers and rules. Outsource to a firm specializing in medical billing.

3. Reduced Overhead
Overhead costs of performing a particular back-office function are extremely high. Consider outsourcing those functions which can be moved easily.

Example: Growth has resulted in an increased need for office space. The current location is very expensive and there is no room to expand. Outsource some simple operations in order to reduce the need for office space. For example, outbound telemarketing or data entry.

4. Operational Control
Operations whose costs are running out of control must be considered for outsourcing. Departments that may have evolved over time into uncontrolled and poorly managed areas are prime motivators for outsourcing. In addition, an outsourcing company can bring better management skills to your company than what would otherwise be available.

Example: An information technology department that has too many projects, not enough people and a budget that far exceeds their contribution to the organization. A contracted outsourcing agreement will force management to prioritize their requests and bring control back to that area.

5. Staffing Flexibility
Outsourcing will allow operations that have seasonal or cyclical demands to bring in additional resources when you need them and release them when you’re done.

Example: An accounting department that is short-handed during tax season and auditing periods. Outsourcing these functions can provide the additional resources for a fixed period of time at a consistent cost.

6. Continuity & Risk Management
Periods of high employee turnover will add uncertainty and inconsistency to the operations. Outsourcing will provide a level of continuity to the company while reducing the risk that a substandard level of operation would bring to the company.

Example: The human resource manager is on an extended medical leave and the two administrative assistants leave for new jobs in a very short period of time. Outsourcing the human resource function would reduce the risk and allow the company to keep operating.

7. Develop Internal Staff
A large project needs to be undertaken that requires skills that your staff does not possess. On-site outsourcing of the project will bring people with the skills you need into your company. Your people can work alongside of them to acquire the new skill set.

Example: A company needs to embark on a replacement/upgrade project on a variety of custom built equipment. Your engineers do not have the skills required to design new and upgraded equipment. Outsourcing this project and requiring the outsourced engineers to work on-site will allow your engineers to acquire a new skill set.