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Top 5 Reasons Companies Outsource
 One
of the benefits of having been in business for 30 years is the
opportunity to work with a large number of diverse, yet successful
companies. However, for outsourcing to be successful, management
must have a clear set of goals and objectives in mind from the
start. Companies that have incorporated outsourcing into their
business management philosophy do so for a variety of sound business
reasons.
Today, with so much focus being on business processes and the return
on investment associated with them, it is important to look at the
strategic and tactical objectives that can make the decision toward
outsourcing non-core business processes a wise one.
Reason #1: Reduce and Control Operating
Costs
(Strategic-long term benefit)
The single most important strategic reason for outsourcing is to
reduce and control operating costs.
Having access to the outside provider's lower cost structure and
advanced technology, which may be the result of greater economy of
scale or some other advantage based on specialization, is clearly
and simply one of the most compelling reasons for outsourcing.
Additionally, companies that try to do everything themselves may
incur vastly higher research, development, marketing, production and
employment expenses—expenses that ultimately have to be passed onto
the customer. Today's customers are too sophisticated to accept the
costs associated with an organization's attempts to maintain
singular control over all its resources.
Reason #2 : Make Capital Funds Available
(Strategic-long term benefit)
Outsourcing is a way to reduce the need to invest capital funds in
non-core business functions. Instead of acquiring the resources
through capital expenditures, they are contracted for an "as used"
operational expense basis, thus making capital funds more available
for core areas. It can also improve certain financial measurements
of the firm by eliminating the need to show return on equity from
capital investments in non-core areas.
There is tremendous competition with most organizations for capital
funds. Deciding where to invest the funds is probably one of the
most important decisions that an organization's senior management
makes.
For example, when a firm decides to outsource its statement, invoice
or debtor letter printing, the equipment and personnel in that area
no longer compete for the company's capital. Often, these types of
investments—and their constantly escalating demands—have been
difficult to justify when compared to areas more directly related to
producing product or serving the customer.
Reason #3: Free Resources For Other
Purposes
(Tactical - near-term issue)
Every organization today has limits on the resources available to
it. The constant challenge is to ensure those limited resources are
expended in the most valuable areas. Outsourcing permits an
organization to redirect its resources from non-core activities
toward activities that have the greater return in serving the
customer.
Most often, the resources redirected through outsourcing are people
resources. By outsourcing non-core functions, the organization can
redirect these people, or at least the staff slots they represent,
onto greater value-adding activities. People whose energies are
focused on accomplishing internal process can not be focused
externally—on the customer.
Reason #4: Resources Not Available
Internally
(Strategic - long term benefit)
Companies outsource because they do not have access to the required
resources within the company. For example, if an organization is
expanding its customer base and does not have the equipment or
personnel to continue mailing customer billing statements in a
timely basis, cash flow is adversely affected. In addition, recent
postal changes providing discounts to qualifying companies using
automated mailing systems further impacts a company's operational
costs in that area because of limited resources.
Quite simply put, rapid growth or expansion of operations is often a
strong indicator that outsourcing may be the right decision for a
company.
Reason #5: Improve Company Focus
(Tactical - near-term issue)
Outsourcing lets the company focus on broader business issues while
having non-core operational details assumed by an outside expert.
Outsourcing is an organization-shaping management tool which can
lead to a clearer more effective focus on meeting the customers'
needs. For many companies, the single most compelling reason for
outsourcing is that several of the "how" type of issues are
siphoning off huge amounts of management's time and attention. Too
often, resolution of these issues get stuck in middle management
"decision gridlock". This creates financial and opportunity costs
that affect the organization's future.
Outsourcing can enable an organization to accelerate its growth and
success through expanded investment in the areas which offer it the
greatest competitive advantage.
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