At its most basic, outsourcing is simply the farming out of services to a third party.
Outsourcing involves the transfer of the management and/or day-to-day execution of an entire business function to an external service provider.
Business segments that typically outsource include information technology, human resources, facilities, real estate management, and accounting. Many companies also outsource customer support and call center functions like telemarketing, customer service, market research, manufacturing, designing, web development, content writing, ghostwriting and engineering.
Reasons for outsourcing :
Following are some of the reasons why companies outsource various functions :
Cost savings: The lowering of the overall cost of the service to the business. This will involve reducing the scope, defining quality levels, re-pricing, re-negotiation, cost re-structuring. Access to lower cost economies through offshoring called "labor arbitrage" generated by the wage gap between industrialized and developing nations.
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.
Improve quality : Achieve a step change in quality through contracting out the service with a new service level agreement.
Knowledge :Access to intellectual property and wider experience and knowledge.
Operational expertise : Access to operational best practice that would be too difficult or time consuming to develop in-house.
Staffing issues : Access to a larger talent pool and a sustainable source of skills.
Capacity management : ...