In business terms outsourcing can be defined as contracting out of a business process to another business process. Outsourcing sometimes involves transferring employees and assets from one firm to another, but is not same way always. Outsourcing can also be in terms of handing over control of public services to an profit seeking private organization.
Outsourcing can be very effective cost-saving strategy if it is used properly. Sometimes purchasing a good from companies is affordable than to produce the good internally. Outsourcing can be used to do much more things than just cutting costs. Outsourcing was initially used as a cost-cutting measure, but companies routinely use outsourcing now for far more strategic ends to achieve capabilities that they don’t possess in company or to strengthen capabilities they already have.
There are some issues as well while choosing option of outsourcing. As companies continue to move more and more functions to third party in order to capture costs, they must also be ready to face the side effects or consequences associated with it. Application development outsourcing is becoming very common. After decision is made to outsource, the organization must understand its risk and ensure that outsourcing party delivers true value and high quality product.
One popular form of outsourcing is knowledge process outsourcing, also termed as KPO which is also outsourced offshore. It is more expensive than bpo services because it involves outsourcing a company's core functions that aid value addition such as legal processes, online teaching, financial analysis, and design and animation and many more hence this require a more specialized set of skills and expertise that usually involves advanced analytical skills.
Recruiting people and maintaining them has been the costliest task ever that is when organization recruit people, they need to be supervised and organization also need to invest on the machines and employees salary. Outsourcing software development to offshore companies reduces quite a lot of the actual cost spent on employee recruitment, training and on salary. Risk factor is everywhere but one has to step out and manage it so that you can take the benfit out of the risk. Major benefits of outsourcing are:
- No need to spend time and money on recruitment and training of people.
- As the third party will be specialized in that field, there will be increase in quality of service.
- There is no need to invest as everything is taken care of by the outsourced company.
- There is more time to concentrate on core business process as everything other than core has been outsourced to the third party companies.