Factors such as a tight IT resource and the high salaries of skilled technology workers make compelling arguments for seeking outside expertise. Increased competition for market share, better informed customers, tighter margins and shorter product life cycles have caused businesses to examine where there may be opportunities to focus better on core competencies,
to reduce risk and costs, and to become competitive in order to survive. Realizing that there is no reason to own expertise internally more companies outsource to become efficient.
Outsourcing Makes Sense
Companies throughout the world are increasingly discussing the outsourcing of non-core services as a way to achieve strategic goals, improve customer satisfaction and reduce costs. More and more services are now being outsourced to specialist providers. The benefits of outsourcing non-core services include:
Improve Core Business Focus
Outsourcing enables a company to focus critical energy and resources on core business functions and mission-critical projects (e.g., new product development, market expansion) while leaving operational details to outside experts. Companies can dilute precious resources by devoting too much attention to areas that do not contribute to the bottom line. By concentrating on strategic business objectives and not the varied support functions required to achieve those goals, a company can better concentrate its talents on activities that will improve its abilities to compete effectively and grow.
Access Specialized Expertise & The Latest Technology
Outsourcing firms provide access to specialized tools, techniques, technologies, and knowledge that can only be maintained by a company that has focused its learning and business on providing top rate services in a particular area. Outsourcing firms can provide specialized talent and resources at a fraction the cost of having to purchase or develop them in-house.
Economies of Scale
Outsourcing providers can spread the benefits and costs of technology, hiring and training expenditures across a number of clients and over a period of time.
They are able to do so with economies of scale not available to a company trying to accomplish any one of the same objectives on its own.
Reduce Capital Expenditures
Return on Capital Employed and Return on Equity can be effective ways of measuring a company's efficiency. Outsourcing the provision of capital items (e.g., computer systems) as contracted expenses reduces the capital required to provide non-core and non-revenue-producing services and eliminates many of the up-front investments required to provide these services in-house.
Selective Outsourcing
Realizing that outsourcing is not all or nothing; selective outsourcing is the outsourcing of one or more system functions where total outsourcing transfers most equipment, staff and responsibility to a vendor. The sum of what is outsourced is generally less than total outsourcing.
Selection of the Vendor
The most successful outsourcers have clear communication, effective performance measures and a shared vision for outsourcing. The key components to look for from a vendor:
Ability to demonstrate reliability
Facility to tailor solutions to meet specific needs
Detailed service level agreements
Predictable monthly costs
Flexibility of contract terms
Scope of internal resources
