Outsourcing

Meaning & Definition

Outsourcing

Outsourcing is the business practice of hiring a party outside a company to perform services and create goods that traditionally were performed in house by the company's own employees and staff. Outsourcing is a practice usually undertaken by companies as a cost-cutting measure. As such, it can affect a wide range of jobs, ranging from customer support to manufacturing to the back office.

Outsourcing can help businesses reduce labor costs significantly. The outside organizations typically set up different compensation structures with their employees than the outsourcing company, enabling them to complete the work for less money.

In addition to cost savings, companies can employ an outsourcing strategy to better focus on the core aspects of the business. Outsourcing non-core activities can improve efficiency and productivity because another entity performs these smaller tasks better than the firm itself.

Frequently Asked Questions (FAQ's)

  1. What are the benefits of outsourcing?

    • It is an effective cost cutting measure as you are exempted from certain taxes.
    • It brings in an outside perspective with best practices.
    • It gives a lot of flexibility in terms of staffing as the whole hiring process can be skipped.
    • It saves a lot of time thereby increasing efficiency as lots of projects can be undertaken at the time.
    • It can help save expenditure on technology and other infrastructure.
  2. What is the difference between Outsourcing and offshoring?

    Outsourcing is the practice of hiring a third party to replace in-house services and to complete certain business requirements while offshoring is the practice of basing some of a company's processes or services overseas, so as to take advantage of lower costs.

  3. What can and cannot be outsourced?

    Almost all business function tasks can be outsourced. For instance, marketing, sales, accounting, customer service, technology tasks and even HR.

    However, employee development and upskilling, business strategies and Quality assurance are done best when not outsourced.

  4. Is outsourcing good or bad?

    It depends on what is being outsourced. Sometimes if proper measures are not taken, the delivered work might not match the company standards or might cause security issues, and that is never a good sign. However, if outsourcing is resulting in high efficiency and less expenditure then it is quite good.

  5. When is the best time to outsource?

    All companies, some in their nascent stages, some in their late stages practice outsourcing. An ideal time to outsource is when a company is looking at cutting costs yet maintaining the same output, or when a company wants to focus more on business development and strategy, or when having sufficient technology on-premise is difficult. Outsourcing is an easy way to accelerate growth.

  6. Is outsourcing ethical?

    Outsourcing is an ethical practice followed by most firms including the leading companies of the world such as Google, Microsoft, Facebook etc. It can be ensured that the process of outsourcing is made ethical by:

    • Ensuring the safety of your organization as well employees.
    • Keeping all the security measures in check.
    • Maintaining a proper record of the capital being spent.
  7. What are the demerits of outsourcing?

    Major disadvantages of outsourcing or contract-based work are:

    • Security issues.
    • Release of confidential information.
    • Low quality in terms of meeting company standards.
    • Partial ownership or Loss of control.
    • >Hidden costs.

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