Outsourcing in a Nutshell

Outsourcing became part of the business lexicon during the 1980s. It refers to the delegation of non-core operations from internal production to an external company. Outsourcing is transforming whole industries and changing the way we work.

What is Outsourcing?

Outsourcing, in literal terms, means sourcing from outside. Outsourcing is contracting with another company or person to do a particular function. More than just cost-cutting, outsourcing is a strategic initiative that can re-shape your business. Typically, the function being outsourced is considered non-core to the business, and therefore, your company may benefit in the long run by freeing up workers and job functions.

History of Outsourcing

Outsourcing has been occurring for decades. Once a dirty word in the workforce, outsourcing has become more acceptable, as long as it doesn't drive down wages of already hard hit economy. In the US in the 1970s, it was common for computer companies to export their payrolls to outside service providers for processing. This continued into the 1980s, where accounting services, payroll, billing, and word processing all became outsourced work.

Benefits of Outsourcing

Not many businesses thoroughly understand the benefits of outsourcing. Outsourcing reduces overheads, and frees up resources. Outsourcing also minimizes capital expenditure, and eliminates investment in fixed infrastructure.

Types of Outsourcing

Typically, there are two types of outsourced services: technology and business process. Information technology outsourcing has come a long way in the last 15 years. IT outsourcing has grown in popularity as an efficient, cost-effective, and expert solution designed to meet the demands of growing tech needs in the workforce. Business Process Outsourcing is the contracting of a specific business task, such as payroll, to a third-party service provider. Many firms are investigating business process outsourcing for back-end processes as a way to cut costs and focus on core competencies.

Conclusion

Outsourcing is transforming whole industries and changing the way we work. Outsourcing is an increasingly popular practice among businesses seeking to cut operating costs and free up their workforce. Some argue that the outsourcing of jobs (particularly off-shore) exploits the lower paid workers. However, outsourcing both creates and destroys jobs, in that someone is getting a job and someone is surrendering a job, at the same time it allows for companies to focus on core competencies.