What is Outsourcing?
Outsourcing refers to the way in which companies entrust the processes of their business functions to external vendors (Dinu, 2015). At times, an organization cannot handle all aspects of a business process internally while focusing on their core competencies. There are necessary functions that an organization would prefer to outsource. Once the function is outsourced to the service provider, they will take ownership and risk to manage the function as agreed upon by both parties. According to much of the literature and research on case studies, Figure 1 details the most commonly outsourced activities (Hoecht, & Trott, 2006). IT Outsourcing Legal Outsourcing
Content Development Web Design and Maintenance
Recruitment Logistics and Distribution Services
Manufacturing Technical/Customer Service
Human Resources Services Sales and Marketing
Finance and Accounting Services Procurement Services
Computer Programming Services Tax Compliance
Training Administration Transportation of Products
Benefits and Compensation Planning Payroll and Human Resource Functions
Figure 1: The most commonly outsourced activities. Why Outsource?
When an organization is considering outsourcing, they must weigh the efficiency of performing the activity internally versus the external vendor’s efficiency and evaluate the risk associated with the decision. The organization must consider both strategic and operational issues related to the decision to outsource. Greaver (1999), identified the principal factors which have led to an increase trend of outsourcing as:
• Lack of expert labor in some portions of the business process
• Availability of cheaper labor, while not compromising on the quality of output
• Ability and feasibility to concentrate on the other crucial business processes
Expertise in communication, skills, and convenient financial