Outsourcing

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Transferring business processes. Explanation of Outsourcing.

What is outsourcing? Definition

Outsourcing is a strategic management model wherein business processes are transferred to another company. The concept is: to let a third party service provider perform the management and/or day-to-day execution of one or more business functions. This third party service provider is Insourcing those same processes. Outsourcing occurs when a company uses an outside firm to provide a necessary business function that might otherwise be done in-house.

It is different from Subcontracting, because the function is provided on an ongoing basis, rather than for a specific project. It can be provided on the same or another location, in the same country or in a separate country (Offshoring).

In its most advanced form, outsourcing makes it possible to build a large, entirely virtual company with only a single employee: the entrepreneur himself.

Why business process outsourcing? Main Motives

The most important motives for outsourcing are:

1. To make an organization more competitive, by staying focused on its Core Competence.
2. To achieve cost reduction and efficiency.
3. Access to special resources or capabilities. Compare: 3rd Party Logistics (3PL)
4. To stimulate entrepreneurship in small organizational entities.

outsourcing business models

At least three business process outsourcing models can be distinguished:

1. Shared Service Center. (See below)
2. Spin-off. This spin-off company leaves the parent company to specialize in certain activities which are outsourced by the parent company.
3. Outsourcing to an external organization. Compare: Organization Chart.

Other Potential Benefits of Outsourcing

• Renewed focus on core business.
• Mitigation of risks by reliance on an expert.
• Improved customer satisfaction through improved processes not part of the enterprise's culture or experience.
• Ability to reward workers with career opportunities in a specialty company.
• Project improvement.
• Service improvements.
• Skills upgrade.
• Skills retention.
• Skills access.
• Technology infusion.
• Cost accounting and overall visibility of accounting and performance in a business process.
• Cost reduction.
• Management of volatility in costs through financial engineering.
• Asset conversion.
• Avoidance of capital investment.

Glossary of typical Outsourcing terminology:

Outsourcing Forum New Topic  |  Help Loss of Buyer's Competence due to Outsourcing "If you outsource something that you make today, you are probably a very competent buyer. Some years later you may not have the competence to make this component or perform this activity anymore a..." How to Estimate Loss of Intellectual Property in Case of Outsourcing "I am working on the analysis of a product which is already being produced... Completely in-house in our company. My task is to draw a model in which effects of outsourcing are visible. I would like to..." Incentivised Outsourcing Contracts "I've been looking to see any proof that incentivised contracts in outsourcing really work i.e. do they actually increase quality or meet on-time delivery deadlines etc, etc? Anyone put any statistics ..." Outsourcing Alternative: Insourcing "These outsourcing risks are the reasons why companies should first ponder on it before plunging in. In fact, a better alternative would be where your company would have the ability to access all of..." Public Services Outsourcing "Given 35 years of both private and public sector experience, I am very cautious of embracing outsourcing as a panacea for reducing costs and increasing performance in public services. As experience ha..." What is Outsourcing - Definiton "Is the managment or day-to-day execution of an entire business function by a third-party service provider. Outsourced services may by provided on or off premises in the same country, or in a se..." When to Outsource Innovation? "According to Michael A. Stanko, Jonathan D. Bohlmann and Roger J. Calantone in the article “Outsourcing Innovation” (Executive Adviser, November 2009), outsourcing research and development and the cre..." How to Maintain Control in Outsourcing (jobwork) "I am working on a outsourcing project witha textile company. Here the weaving process is outsourced to an external vendor. I need to know what are the various control measures one can use over the ven..." Shared Services Models and Theories "I'm doing a research on shared services in the public sector. Does anyone have info on the types of models and theories available in shared services?" Pricing of Outsourcing "Could someone advise how pricing is done in the outsourcing industry?" Co. Size matters in Outsourcing Customer Services "My experience is the bigger the co. moving to outsourcing with customer service the higher the risk in customer satisfaction. Offshoring increases the risk even higher." Offshoring of Creative Work and Knowledge Work "I recommend the amusing and instructive case by management writer Stephen Brown in Harvard Business Review September 2008 about the question: Is high-end knowledge and creative work immune to globa..." Disadvantages of Outsourcing "All the above mentioned benefits made me think: OK, but what are the limitations and disadvantages of outsourcing? I can think of these: 1. Less management control over the outsourced acti..." What is Integral Outsourcing? "A new term, coming from the UK, is 'Integral Outsourcing', basically outsourcing the outsourcing. In the past decennia, several (non-core) processes have been outsourced in many organizations. Fo..." Keep in touch with this topic Please log in... New Topic

Outsourcing Special Interest Group Visit the Special Interest Group

Compare with Outsourcing:  Business Process Reengineering  |  Vertical Integration  |  Horizontal Integration  |  Co-Creation  |  Value Stream Mapping  |  Value Chain  |  Core Competence  |  Bricks and Clicks  |  Delta Model  |  Management Buy-out  |  Acquisition Integration Approaches  |  SWOT Analysis  |  Benchmarking  |  3rd Party Logistics (3PL)  |  Vendor Managed Inventory

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