An outsourcing reality check: Cost reduction not the only factor to outsource

Outsourcing, without any doubt is a proven means for the companies worldwide to slash down their costs. They could replace their costly employees with less expensive employees that are located in offshore outsourcing destinations. However, the concept of outsourcing by companies merely to slash the cost is changing and a new perspective is emerging, that is pushing outsourcing to move up the value chain.

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Today companies want more than just cost reduction from their outsourcing partner. They want a partner who can help them with innovation, give more flexibility to their business and deploy the expertise and skills in the areas that they lack in-house. Companies unanimously agree to the fact that the outsourcing process has helped them to focus on the core aspects of business where they are really good at, with added advantage of cost reduction.

There is an increasing trend among the companies to outsource business process for a better business outcome. According to a study conducted among the manufacturing companies in Australia, there is a growing trend among the companies to outsource their process to access the skills and expertise they lack in-house. The report titled Efficiency and Outsourcing: Evidence from Australian Manufacturing, claims that companies are looking at their outsourcing partners to provide them with the skills that they cannot develop internally and improve the quality of service delivery by improving the operational efficiencies rather than just cost savings.

When it comes to IT outsourcing, the trend becomes more sophisticated. Companies that outsource IT functions now outsource to several providers rather outsourcing the entire IT function to single provider. There are some advantages in outsourcing to several providers. The first and foremost advantage is that it enables the companies to select the provider with the best resources and skills available. Secondly, the process creates a competition among the service providers which ultimately results in better deals for the buyer.

Another reason for companies to outsource is to bring in scalability and flexibility to their business operations. It is seen that companies outsource to external providers so as to help them in their transition of moving from small enterprise to a large one. When companies expand quickly, they are finding it profitable to outsource their non-core activities so as to concentrate on their core-business front.

However, companies should not continue to underestimate the cost of managing outsourcing partner. Companies should always retain some of their expert staff of the outsourced process so as to ensure that the required services are being delivered as stipulated in the contract.

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