Reason for Outsourcing

Umar Zai

Unlocking the Power of Outsourcing: 15 Compelling Reasons for Outsourcing  Services

In today’s fast-paced business world, there are multiple reason s for outsourcing  services. Outsourcing has become an essential aspect of running a company.  Outsourcing is the practice of delegating non-core business functions to third party providers, who specialize in those functions. This practice has become  popular among businesses of all sizes, from small startups to large corporations.  In this article, we will explore 15 reasons for outsourcing services. 

#1 Reason for outsourcing – Cost savings: One of the primary reasons why  companies outsource their services is to save money. Outsourcing non-core functions such  as accounting, human resources, and customer service can help reduce  overhead costs, as well as labor costs in certain cases. By outsourcing these  functions, companies can avoid the expense of hiring and training staff. For  example, many companies outsource call center and customer support  services to countries where labor costs are lower. For instance, Dell  outsourced its call center operations to India in order to save money on labor  costs. 

#2 Reason for outsourcing – Access to specialized expertise: Companies may  also outsource to gain access to specialized expertise that they may not have  in-house. For example, if a company needs to develop a new software  application, they may outsource to a company that specializes in software  development. For example, an engineering firm may outsource its software  development to a provider that specializes in that field. A real-life example is when Microsoft outsourced its software testing services to Infosys, an Indian IT  services provider, to leverage their specialized expertise in this field, making it a solid reason as to why companies outsource their services. 

#3 Reason for outsourcing – Improved efficiency: Outsourcing can also lead to  improved efficiency by allowing a company to focus on its core business  functions. By delegating non-core functions to third-party providers,  companies can free up resources that can be used to improve their core  operations. For example, a food manufacturing company may outsource its  logistics and distribution to focus on its core competency of food production, allowing them to focus their resources and energy on what they do best.  Coca-Cola outsourced its IT infrastructure management to IBM in order to  focus on its core competency of beverage manufacturing, adding to the reasons why companies outsource their services. 

#4 Reason for outsourcing – Increased flexibility: Outsourcing can provide  companies with greater flexibility. By outsourcing non-core functions,  companies can adjust their operations more easily in response to changes in  market conditions or shifts in business strategy. For example, a company may  outsource its payroll and accounting functions to a provider that can perform  these functions more efficiently than the company can internally. To emphasize another reason why  companies outsource their services from the examples mentioned, let’s highlight a real-life example. When HSBC outsourced its accounting services to IBM, the idea helped to improve the efficiency of its financial operations. 

#5 Reason for outsourcing – Access to advanced technology: Companies may  outsource to gain access to advanced technology that they may not have in house. For example, a company may outsource its IT operations to a third party provider that has access to the latest hardware and software. Here’s another example, a company may outsource its customer support services to a  provider that can quickly ramp up or ramp down its staff as needed. This brings us to the fifth reason why companies outsource their services.  A real-life  example is when Airbnb outsourced its customer support operations to a  provider that could handle its rapidly growing user base.  

#6 Reason for outsourcing – Better risk management: Another reason why companies outsource their services is the fact that outsourcing  helps companies manage risk by shifting certain functions to third-party  providers. For example, outsourcing IT security can help companies reduce the  risk of data breaches. A company may outsource its IT services to a provider  that can provide access to the latest technology and expertise. A real-life  example is when Pfizer outsourced its IT infrastructure management to IBM to  gain access to advanced technology and expertise.   

#7 Reason for outsourcing – Scalability: The seventh reason why companies outsource their services is that outsourcing can help companies to scale their operations more easily. By delegating non-core functions to third party providers, companies can expand their operations without having to invest in additional infrastructure or personnel. For example, a company may  outsource its manufacturing to a provider in another country where labor  costs are lower. A real-life example is when Nike outsourced its manufacturing  operations to countries in Southeast Asia to take advantage of lower labor  costs. 

#8 Reason for outsourcing – Access to global talent: Outsourcing can provide  companies with access to a global pool of talent. By outsourcing functions to  providers in other countries, companies can tap into a broader range of skills  and expertise. To support the reason why companies outsource their services at this point, we will consider an example, a company may outsource its customer support  services to a provider that can quickly adapt to changes in the market. A real-life example is when American Express outsourced its customer support  operations to a provider that could quickly adapt to changes in the market and  provide better customer support. 

#9 Reason for outsourcing – Improved quality: Adding to the list of reasons why companies outsource their  services is the idea of improving the quality of services. Outsourcing can lead to  improved quality of services by allowing companies to take advantage of the specialized  expertise of third-party providers. For example, outsourcing customer service  to a provider that specializes in this function can help improve the quality of  customer support. Another example is, a company may outsource its product  development to a provider that can quickly develop and launch new products.  A real-life example is when Apple outsourced its product development to  Foxconn, a Taiwanese electronics manufacturer, to quickly develop and launch  new products.  

#10 Reason for outsourcing – Focus on core competencies: Outsourcing can  help companies focus on their core competencies, bringing us to the tenth reason why companies outsource their  services. By delegating non-core  functions to third-party providers, companies can concentrate on what they do  best, without being distracted by other functions. For example, a company  may outsource its quality control to a provider that can provide higher quality  control standards. A real-life example is when Ford outsourced its quality  control to a provider that could ensure the highest quality standards for its  vehicles. 

#11 Reason for outsourcing – Reduced time to market: Another reason why companies outsource their services is to help reduce the time it takes to bring products and services to  market. By delegating non-core functions to third-party providers, companies  can speed up the development and launch of new products and services. For  example, a company may outsource its sales and marketing functions to a  provider that has expertise in the target market. A real-life example is when  Procter & Gamble outsourced its sales and marketing operations to a provider  in China to gain access to the Chinese market. 

#12 Reason for outsourcing – Improved customer service: Outsourcing  customer service can help companies improve the quality of their customer  support; this adds to the many reasons why companies outsource their services. By outsourcing to providers that specialize in customer service,  companies can provide better support to their customers, leading to increased  satisfaction and loyalty. For example, a company may outsource its data  backup and recovery services to a provider that can ensure the safety and  security of its data in the event of a disaster. A real-life example is when Delta  Airlines outsourced its disaster recovery services to IBM to ensure the safety  and security of its critical data in the event of a disaster. 

#13 Reason for outsourcing – Reduced administrative burden: Outsourcing can help reduce the administrative burden on companies. By delegating  non-core functions to third-party providers, companies can free up resources  that can be used for other purposes. To illustrate this reason why companies outsource their services, we’ll consider an example, a company may outsource  its customer support services to a provider that has a higher level of expertise  in providing customer support. A real-life example is when Expedia outsourced  its customer support operations to a provider in the Philippines to provide  better customer service to its customers. 

#14 Reason for outsourcing – Increased competitiveness: In addition to the reasons why companies outsource their services, outsourcing can  help companies become more competitive by reducing costs and improving  quality. Delegating non-core functions to third-party providers will help companies become more efficient, which can help them compete more effectively in the marketplace. For example, a company may outsource its software  development to a provider that can quickly develop and launch new products.  A real-life example is when Cisco outsourced its software development to a  provider in India to quickly develop and launch new products and services. 

#15 Reason for outsourcing – Stream-lined processes: Outsourcing can help companies streamline their processes by providing access to specialized  expertise and advanced technology, making it the last reason why companies outsource their services. By outsourcing non-core functions,  companies can benefit from the streamlined processes of third-party  providers, which can help them improve their own processes. For example, a  company may outsource its HR services to a provider that can handle all  aspects of employee management, from recruiting and hiring to benefits  administration and payroll processing. A real-life example is when Google  outsourced its HR services to a provider that could streamline its HR  operations and reduce the complexity of managing HR functions internally. 

To Take Home

The first and most obvious reason for outsourcing services is cost savings. By  outsourcing non-core functions to third-party providers, businesses can save on the costs associated with hiring and training staff, as well as the costs of  maintaining equipment and facilities. Outsourcing can also allow businesses to  take advantage of economies of scale, as third-party providers may be able to  offer services at a lower cost due to their specialization and volume of work. 

Another reason for outsourcing services is to improve efficiency and focus on  core business functions. By outsourcing non-core functions such as accounting,  IT support, or customer service, businesses can free up time and resources to  focus on their core competencies. This allows businesses to operate more  efficiently, with greater flexibility and agility, which can be crucial in today’s  fast-paced business environment. 

Outsourcing can also help businesses to access specialized expertise and  technology that they may not have in-house. For example, a small business  may not have the resources to invest in expensive software or infrastructure,  but by outsourcing to a specialized provider, they can access the latest  technology and expertise without the upfront investment. This can help businesses to stay competitive in their industry and keep up with the latest  trends and innovations. 

The article has helped us see that there are many reasons why companies outsource their  services, ranging from cost savings and access to specialized expertise to  improved efficiency, scalability, and risk mitigation. By outsourcing non-core  functions, companies can focus on their core competencies and provide better  products and services to their customers. Whether it is outsourcing call center  operations to India or manufacturing operations to Southeast Asia, outsourcing can provide companies with a range of benefits and advantages  that can help them succeed in today’s global economy.

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Posted on: February 19, 2023 at 3:37 am