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Why Do Companies Outsource?

What is Outsourcing?


Businesswoman talking on headset at desk
Jose Luis Pelaez/Blend Images/Getty Images

What is Outsourcing?

Outsourcing can be defined as “the strategic use of outside resources to perform activities traditionally handled by internal staff and resources.: Outsourcing is a strategy by which an organization contracts out major functions to specialized and efficient service providers, who become valued business partners. Sometimes outsourcing involves the transfer of employees from the company to the outsourcing company.

Why do companies outsource?

Here are some common reasons:
    * Reduce and control operating costs
    * Improve company focus
    * Gain access to world class capabilities
    * Free internal resources for other purposes
    * A function is time consuming to manage or is out of control
    * Insufficient resources are available internally
    * Share risks with a partner company
In the early days, cost or headcount reduction were the most common reasons to outsource. In today’s world the drivers are often more strategic, and focus on carrying out core value-adding activities in-house where an organization can best utilize its own core competencies. Main factors influencing successful outsourcing The critical areas for a successful outsourcing program are:
    *Understanding company goals and objectives
    *A strategic vision and plan
    *Selecting the right vendor
    * Ongoing management of the relationships
    * A properly structured contract
    * Open communications with affected individual/groups
    * Senior executive support and involvement
    * Careful attention to personnel issues
    * Short-term financial justification
From this list open communications and executive support are of paramount importance in a successful outsourcing process. Additional consideration should be for a workable Service Level Agreement, which is openly available, to all staff involved.

Open Communication

Whatever the outcome of the outsourcing arrangement, managing change is fundamental to the success of the program. Assessing stakeholder requirements is the first part of this process, and having open channels of communications during this time are vital. Everyone concerned should be involved in the process.

Executive Support

Strategic objectives, such as outsourcing initiatives must come from the top echelons of a company. Senior management must articulate the goals and objectives of the outsourcing initiative and communicate how the process will benefit the organization

Today’s managers are looking ahead and recognizing that the responsibility for ensuring the success of their enterprise’s outsourcing initiatives does not stop when the ink has dried on the contract, Unfortunately, this has not always been the case. A combination of uncertainty combined with a lack of attention to critical details has created a present day scenario where, according to The Gartner Group, 25% of outsourcing contracts will be re-negotiated or canceled within three years. Ongoing management of the relationship is important. Senior management must stay involved during the implementation of the contract. Not only should there be a clearly defined escalation procedure, but senior management should meet at appropriate intervals to discuss the outsourcing relationship. Meetings should also be held at the operational level to address the working of the outsourcing contract in practice, to identify and resolve any problems that have been encountered, and to agree on changes to ensure continued satisfaction

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