What Is Outsourcing ?

t is outsourcing? Outsourcing is contracting withACS, Accenture and Capgemini.
another company or person to do a particular function.Some nimble companies that are short on time and
Almost every organization outsources in some way.money, such as start-up software publishers, apply
Typically, the function being outsourced is consideredmultisourcing -- using both internal and service provider
non-core to the business. An insurance company, forstaff -- in order to speed up the time to launch. They
example, might outsource its janitorial and landscapinghire a multitude of outsourcing service providers to
operations to firms that specialize in those types ofhandle almost all aspects of a new project, from
work since they are not related to insurance orproduct design, to software coding, to testing, to
strategic to the business. The outside firms that arelocalization, and even to marketing and sales.
providing the outsourcing services are third-partyThe process of outsourcing generally encompasses
providers, or as they are more commonly called,four stages:
service providers.1. Strategic thinking, to develop the organization's
Although outsourcing has been around as long asphilosophy about the role of outsourcing in its activities.
work specialization has existed, in recent history,2. Evaluation and selection, to decide on the
companies began employing the outsourcing model toappropriate outsourcing projects and potential locations
carry out narrow functions, such as payroll, billing andfor the work to be done and service providers to do it.
data entry. Those processes could be done more3. Contract development, to work out the legal, pricing
efficiently and therefore more cost-effectively, byand service level agreement (SLA) terms.
other companies with specialized tools and facilities4. Outsourcing management or governance, to refine
and specially trained personnel.the ongoing working relationship between the client and
Currently, outsourcing takes many forms. Organizationsoutsourcing service providers.
still hire service providers to handle distinct businessIn all cases, outsourcing success depends on three
processes, such as benefits management. But somefactors: executive-level support in the client
organizations outsource whole operations. The mostorganization for the outsourcing mission; ample
common forms are information technology outsourcingcommunication to affected employees; and the client's
(ITO) and business process outsourcing (BPO).ability to manage its service providers. The outsourcing
Business process outsourcing encompasses callprofessionals in charge of the work on both the client
center outsourcing, human resources outsourcingand provider sides need a combination of skills in such
(HRO), finance and accounting outsourcing, and claimsareas as negotiation, communication, project
processing outsourcing. These outsourcing dealsmanagement, the ability to understand the terms and
involve multi-year contracts that can run into hundredsconditions of the contracts and service level
of millions of dollars. Frequently, the people performingagreements (SLAs), and, above all, the willingness to
the work internally for the client firm are transferredbe flexible as business needs change.
and become employees for the service provider.The challenges of outsourcing become especially
Dominant outsourcing service providers in theacute when the work is being done in a different
information technology outsourcing and businesscountry (offshored), since that involves language,
process outsourcing fields include IBM, EDS, CSC, HP,cultural and time zone differences.