Outsourcing 101

People hear the term “outsourcing” quite a lot; but how often do we find those who actually understand what it means? By dissecting the term, outsourcing basically refers to looking “out” for “sources”. Read on for a crash course on outsourcing!

In business, it’s a scheme which involves contracting an external organization to provide goods or services in favor of another company. It’s a term that was popularized in the 1990s as manufacturing companies turned to others for furnishing of spare parts. At the time, outsourcing was mostly associated with production of goods. But now, a paradigm shift has brought services under the outsourcing lime light. That’s right, the rising trend is now outsourcing services. 

It was a strategy born out of the constantly rising complexities of commercial enterprise. As organizations evolved, it was realized that some products and services were better off outsourced than created and provided in-house. 

The main goal appears to be the shifting of focal point towards the company’s core competencies; it could be on its main production line, or the fundamental services it offers. 

Often times, companies outsource the skills, expertise and facilities of others for spare parts. This is more cost-effective than building the facilities and training associates for the production line. For instance, manufacturers of mobile phones contract external organizations for the production of screens, cameras, and speakers. The popular Corning Gorilla glass screens used in both Samsung and Apple phones are produced by Corning Inc., a company with expertise in specialty glass, ceramic, and related technologies.

A law firm can contract an accounting firm for bookkeeping services. This way, the law firm is able to prioritize the practice of law, while the accounting firm can take care of the rest. Again, this proves to be more cost-effective than hiring an in-house accountant full time. In the Philippines, Accenture brought about the rise of Business Process Outsourcing (BPO) in 1992. To this day, their employees continue to offer services from developing, managing and maintaining system design and application software to processing transactions for health care, legal publishing and transaction markets.

Business firms engage in one form of outsourcing one way or another, regardless of the size of the organization. By not trying to do everything on its own, an enterprise can hone in on its core competency. As it maintains this focal point, the business achieves effectiveness and efficiency through cost-savings measures, decreased capital investment within the firm, and reinforced responsiveness to inconsistencies in the environment of commerce.  There is also an increased competition among suppliers that encourage them to ensure manufacture of better quality goods and services in the future. 

Congratulations, you just completed a crash course into outsourcing. Come by again and learn more!