Reasons for outsourcing
Feb 14
Posted: under Outsourcing.
Tags: expertise, knowledge, Outsource, quality, risk management, talent
Organisations that outsource are seeking to address the following issues:
Cost savings: The lowering of the overall cost of the service to the business. This will involve reducing the scope, defining quality levels, re-pricing, re-negotiation, cost re-structuring. Access to lower cost economies through offshoring called “labor arbitrage” generated by the wage gap between industrialised and developing nations.
Cost restructuring: Operating leverage is a measure that compares fixed costs to variable costs. Outsourcing changes the balance of this ratio by offering a move from fixed to variable cost and also by making variable costs more predictable.
Improve quality: Achieve a step change in quality through contracting out the service with a new service level agreement.
Knowledge: Access to intellectual property and wider experience and knowledge.
Contract: Services will be provided to a legally binding contract with financial penalties and legal redress. This is not the case with internal services.
Operational expertise: Access to operational best practice that would be too difficult or time consuming to develop in-house.
Access to talent: Access to a larger talent pool and a sustainable source of skills, in particular in science and engineering like India where you can easily find the skills in Science and engineering.
Capacity management: An improved method of capacity management of services and technology where the risk in providing the excess capacity is borne by the supplier.
Catalyst for change: An organisation can use an outsourcing agreement as a catalyst for major step change that can not be achieved alone. The outsourcer becomes a “change agent” in the process.
Enhance capacity for innovation: Companies increasingly use external knowledge service providers to supplement limited in-house capacity for product innovation.
Reduce time to market: The acceleration of the development or production of a product through the additional capability brought by the supplier.
Commodification. The trend of standardising business processes, IT Services and application services enabling businesses to intelligently buy at the right price. Allows a wide range of businesses access to services previously only available to large corporations.
Risk management: An approach to risk management for some types of risks is to partner with an outsourcer who is better able to provide the mitigation.
Venture Capital. Some countries match government funds venture capital with private venture capital for startups that start businesses in their country
Source: Outsourcing wiki
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