Outsourcing is defined as ‘the strategic use of outside resources to activities that are traditionally handled by their internal staff and resources’.
Outsourcing is a strategy. Through this, a company contracts key functions for specialized and efficient service providers. Eventually they become valuable business partners.
Establishing a clear and effective control over business processes is very important. Therefore, it’s very difficult for a larger company to perform these functions.
Outsourcing helps companies with the benefits of re-engineering, revising, and optimizing the project according to their customer’s needs.
Outsourcing is the solution to such challenges. It has also become a partnership mode.
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Why do companies outsource?
Reducing costs, focusing on core business goals and planning – these are the two main reasons organizations decide to outsource. But the research shows a shift in industry thinking. Outsourcing is no longer just about saving money, but also an important tool for innovation.
The primary industries for outsourcing are consumer and industrial products, financial services, life sciences and health care and technology, media and telecommunications. There has been an increase in outsourcing from industries such as real estate, facilities management and procurement.
Automation is another industry sector that has a huge impact on outsourcing. When a number of outsourced positions are taken off, the result will be many more high-skilled and highly paid jobs are creating as a result.
Downfalls of outsourcing
While there are a number of effective and potential reasons for outsourcing, many organizations often have to weigh the disadvantages, they are difficult to manage.
Here are some of the biggest disadvantages associated with outsourcing:
- Existing employees may feel disposable or threatened
- Layoffs in employees
- Standards may vary geographically. Hence, problems with product/service quality
- Communication issues such as language and time zones
- Loss of control over policies and procedures
- Threats to data security
Requirements for successful
Cost and headcount downsizing were the common reasons for outsourcing in the early days. Often the drivers today are very strategic. Moreover, a company focuses on making its core competencies effective and value-added activities at house.
The key areas for implementing a successful outsourcing program include:
- Clarity related to company goals and objectives
- A strategic vision and plan
- Vendor selection
- Relationship management
- Properly structured subcontract and vendor agreements
- Open communication with stakeholders
- Senior leadership support and involvement
- Careful attention to personnel issues
- Short-term financial justification