1.1 What is Outsourcing?
Outsourcing is subcontracting a process, such as product design or manufacturing, to a third-party company. The decision to outsource is often made in the interest of lowering firm costs, redirecting or conserving energy directed at the competencies of a particular business, or to make more efficient use of land, labor, capital, technology and resources. The process of outsourcing generally encompasses four stages: 1) strategic thinking; 2) evaluation and selection; 3) contract development; and 4) outsourcing management or governance.
The challenges of outsourcing become especially acute when the work is being done in a different country, since that involves language, cultural and time zone differences.
1.2 Reasons for outsourcing
1.2.1 Cost savings.
The lowering overall cost of the service to the business. This will involve reducing the scope, defining quality levels, re-pricing, re-negotiation, cost re-structuring.
1.2.2 Customer pressure.
Customers may see benefits in dealing with your company, but are not happy with the performance of certain elements of the business, which they may not see a solution to except through outsourcing.
1.2.3 Reduce time to market.
The acceleration of the development or production of a product through the additional capability brought by the supplier
1.2.4 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 variable to fixed cost and also by making variable costs more predictable.
1.2.5 Access to World-Class Capabilities
Organizations that lack strategic relationships with world-class technology vendors would eye for outsourcing to gain access in th ...