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1. Overview
Outsourcing takes place when an organization transfers the ownership of a business process to a supplier. The key to this definition is the aspect of transfer of control. This definition differentiates outsourcing from business relationships in which the buyer retains control of the process or, in other words, tells the supplier how to do the work. It is the transfer of ownership that defines outsourcing and often makes it such a challenging, painful process. In outsourcing, the buyer does not instruct the supplier how to perform its task but, instead, focuses on communicating what results it wants to buy; it leaves the process of accomplishing those results to the supplier.
Outsourcing is defined as the "the process of transferring an existing business function, including the relevant physical and/or human assets, to an external provider in order to strategically use outside resources to perform activities previously handled in-house."
Outsourcing involves transferring a significant amount of management control and decision-making to the outside supplier. Buying products from another entity is not outsourcing or out-tasking, but merely a vendor relationship. Likewise, buying services from a provider is not necessarily outsourcing or out-tasking. Outsourcing always involves a considerable degree of two-way information exchange, coordination, and trust.
Organizations that deliver such services feel that outsourcing requires the turning over of management responsibility for running a segment of business. In theory, this business segment should not be mission-critical, but practice often dictates otherwise. Many companies look to employ expert organizations in the areas targeted for outsourcing. Business segments typically outsourced include information technology, human resources, facilities and real estate management, and accounting. Many companies also outsource customer support and call center functions, manufacturing and engineering. Outsourcing business is often characterized by expertise not inherent to the core of the client organization.
The overhead costs of customer service are typically less where outsourcing has been used[citation needed], leading to many companies, from utilities to manufacturers, closing their in-house customer relations departments and outsourcing their customer service to third party call centers. The logical extension of these decisions was of outsourcing labor overseas to countries with lower labor costs, this trend is often referred to as offshoring of customer service.
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2. Shared services
Organizations now often establish shared services within their firm as an alternative to outsourcing[citation needed]. Shared Services are the convergence and streamlining of an organization’s functions to ensure that they deliver the organization the services required of them as effectively and efficiently as possible[citation needed]. Rather than having a department (e.g. human resources) devolved over a number of offices, a shared service is the centralizing and convergence of these. This often involves the centralizing of back office functions such as HR and Finance but can also be applied to the middle or front offices. A key advantage of this convergence is that it enables the appreciation of economies of scale within the function and can enable multi function working (e.g. linking HR and Finance together, where there is the potential to create synergies). A large scale cultural and process transformation is often a key component of a move to shared services. This transformation often results in a better quality of work life for employees
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3. Outsourcing, offshoring, and offshore outsourcing
Note that “outsourcing,” “offshore outsourcing,” and “offshoring” are used interchangeably in public discourse despite important technical differences. To be consistent, “outsourcing,” in corporate context, represents an organizational practice that involves the transfer of an organizational function to a third party.[4] When this third party is located in another country the term “offshore outsourcing” makes more sense. “Offshoring,” in contrast, represents the transfer of an organizational function to another country, regardless of whether the work stays in the corporation or not. In short, “outsourcing” means sharing organizational control with another organization, or a process of establishing network relations within an organizational field. "Offshoring,” on the other hand, represents a relocation of an organizational function to a foreign country, not necessarily a transformation of internal organizational control.
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4. Benefits of outsourcing
The fact that many large businesses outsource and continue to outsource suggests that, in many cases, outsourcing is successful in that it increases product quality, lowers costs substantially, or both. Some economists have argued that outsourcing is a form of technological innovation analogous to machines on a car assembly line. Ford Motor Company relied heavily on workers in the past to assemble car parts. Today these workers are replaced by machines because they are cheaper in the long run, produce better quality products, or a combination of the two (the firm is trying to increase its quality to cost ratio, quality being defined by the consumer and inferred from revenue). Economists state that machines on the car assembly line must have a higher quality to cost ratio than workers because, if they didn't, there would be no incentive for the firm to replace workers with machines. Although workers’ jobs were lost from this replacement of workers with machines, the Ford Motor Company made more money by lowering costs (and increasing quality, thereby increasing revenue). Some argue that greater profits to the labor owners lead to higher consumption, which leads to further job creation, allowing those who lost jobs to gain jobs in other sectors of the economy. A firm's motivation for replacing workers with machines is identical to the motivation for outsourcing, i.e. the firm is trying to maximize the quality of its product given cost (its productivity). Because outsourcing allows for lower costs, even if quality reduces slightly or not at all, productivity increases, which benefits the economy in aggregate
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| Source: Wikipedia |
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| OFFSHORE AS A SUCCESS |
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| EXPERTISE |
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| SERVICES |
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| OUTSOURCED PROJECTS |
Software Outsourcing Java-J2EE / E-Shop
Gas Station Software does the management for fuel sales and purchases, sales and incomes grouped by categories or by items. All reports and graphics are[...more]
Software Development Php-Perl / Db2Web
Easy to use and customize web application which use an existing database. It's based on a templates engine which allow designers to extract, update [...more]
Products Development Php-Perl / Embedded
Easy Sound Recorder is an embedded tool for recording audio or sound on a small device at a high quality [...more]
Products Outsourcing Php-Perl / Intranet Portal
Multilanguage Intranet Portal.
Includes modules like news, forum and file sharing.
Can be cutomized by departments or groups of users[...more]
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