Industry trends show that companies that have been asking the question 'why outsource' have become vocal advocates of the offshore model. Outsourcing work has come to be a tried-and-tested model and is recognized as a long term competitive strategy for success. The question going around now is not 'why outsource?' but 'why not outsource?'
The economist, Adam Smith, says in his treatise The Wealth of Nations, "If a foreign country can supply us with a commodity cheaper than we ourselves can make it, it is better to buy it of them." Outsourcing as we know it today is merely a progression of an idea that has existed since early days of trade.
As companies grow in size and operations, it becomes increasingly clear that their focus has to be redirected to their core activities while the non-core functions can be 'sent out' or 'outsourced' to vendors specialized in that particular function.
Have you found yourself faced with any of the following doubts in recent times?
If you are asking yourself the question 'why should I outsource', consider the following top reasons for outsourcing cited by companies that have successfully made offshore outsourcing work for them.
Focus on core functions: Companies that outsource certain routine functions to offshore experts are capable of focusing on their core competency. Before outsourcing caught on in such a big way, healthcare practices had to deal with functions like transcription, medical billing and claims processing which consumed a lot of their time and resources. However, now by outsourcing these processes to external locations these practice are able to focus on their primary concern - 'patient care'.
Redirect strategic internal resources for core activities: Outsourcing processes to external third party ensures that an organization's internal resources are freed up for more mission-critical activities.
Accelerate migration to new technology: Migrating to newer technologies allows companies to make better use of their investments and enjoy enhanced productivity and quality. Companies with outsourced IT processes are better enabled to migrate to new technologies with minimum downtime and productivity disruption.
Enhance risk management: In any outsourcing model the offshore partner supplements the operations of the outsourcing company with redundancies and back-up mechanisms. In the event of any natural calamities, accidents, market fluctuations or technical crises the rigorous disaster recovery mechanisms and detailed back up plans at the offshore vendor's end can help companies to rapidly respond to the situation and get operations back on track within remarkable turnaround time.
Lower infrastructure investments: Companies that decide to outsource find that expensive infrastructure requirements are cut back drastically as some of the functions move to external locations. Cutting edge IT systems, state-of-the-art customer service call centers and technical support entail heavy investments to companies. By outsourcing these functions to external vendors, companies can keep their investments in these areas very low.
Access to world-class capabilities: Apart from the financial benefits associated, another reason why companies outsource work is to have processes delivered by teams that have operational expertise in the outsourced process. Outsourcing gives companies access to world-class capabilities and infrastructure in the outsourced function.
Control operating costs: One of the most talked about advantages of outsourcing to locations like India is the cheap labor costs in these countries. Processes outsourced to these locations are done at much cheaper rates and same quality levels as in the donor location. This translates into major cost savings for companies. They also save on operational costs such as payroll, administrative costs, HR, power, rentals and utilities as processes move to other locations.
Improve operational performance: Companies outsource to vendors who have domain expertise in the outsourced process. Their experience in the field translates into greater operational efficiencies for the outsourcing company.
Talent shortages in countries like the U.S. and UK: One of the key reasons why outsourcing has become a necessity is the shortage of talent in countries like the U.S. and UK. As the previous generation of workers approach retirement, there are precious few newcomers coming in to fill the skills pipeline. The obvious outcome of this acute talent shortage is an increased demand for skills wherever they may be available.
Overcome seasonal workflows: Industries in the U.S. and UK are subject to seasonal fluctuations in work and lack of workers during holidays and off-seasons. One of the advantages of outsourcing such processes to countries like India and Philippines is that companies can deal with peak workloads and poor staff strength during vacations and holidays.
One time applications: Companies often need to build one time applications. Such ad hoc or one time applications will require which require high manpower resources and companies find that they are faced with the need to ramp up in relatively short time spans. Outsourcing such needs is the best solution for companies that want to avoid expensive outlays for the short term.
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Despite outsourcing having come into a lot of controversies in recent times, industry watchers predict that outsourcing as a business practice is on a growth mode. More and more companies are drawing up plans to outsource work to offshore locations. The trend is clearly in favor of outsourcing larger volumes of work. Vendors are moving up the value chain to include in their service offering a range of additional services that require greater skills, research support and expertise. As offshore vendors become more streamlined and improvise on the offshore outsourcing model, it is not difficult to see why outsourcing is here to stay.