What Is Outsourcing?

Answer:

Outsourcing takes place when an organization transfers the ownership of a business process to a supplier. The key to this definition is the aspect of transfer of control. This definition differentiates outsourcing from business relationships in which the buyer retains control of the process or, in other words, tells the supplier how to do the work. It is the transfer of ownership that defines outsourcing and often makes it such a challenging, painful process. In outsourcing, the buyer does not instruct the supplier how to perform its task but, instead, focuses on communicating what results it wants to buy; it leaves the process of accomplishing those results to the supplier.

The process of outsourcing generally encompasses four stages:

• Strategic thinking, to develop the organization's philosophy about the role of outsourcing in its activities
• Evaluation and selection, to decide on the appropriate outsourcing projects and potential locations for the work to be done and service providers to do it
• Contract development, to work out the legal, pricing and service level agreement (SLA) terms
• Outsourcing management or governance, to refine the ongoing working relationship between the client and outsourcing service providers.

Outsourcing also allows companies to focus on other business issues while having the details taken care of by outside experts. This means that a large amount of resources and attention, which might fall on the shoulders of management professionals, can be used for more important, broader issues within the company. The specialized company that handles the outsourced work is often streamlined, and often has world-class capabilities and access to new technology that a company couldn't afford to buy on their own. Plus, if a company is looking to expand, outsourcing is a cost-effective way to start building foundations in other countries.