So what is outsourcing exactly? Well outsourcing is defined as the tactical utilisation of external entities to carry out tasks usually completed by internal personnel and resources. This differs from insourcing, in which work that would have normally been completed in-house, is for whatever reason, contracted out instead.
Although most likely employed by businesses, outsourcing is often utilised by individuals too. Websites such as www.guru.com and www.freelancer.co.uk are essentially outsourcing websites, and are frequented by both companies and individuals advertising projects and one off tasks to the online freelancing community.
So why do Companies Outsource?
The most common reason why a company would outsource is to save money on costs. The savings of, for example, buying certain components or parts required in a manufacturing process as opposed to buying machinery to manufacture them internally, as well as training staff and purchasing materials, is a clear illustration of how outsourcing can help to cut down on production costs.
But there are other ways in which outsourcing can benefit a company. Often businesses outsource noncore tasks which do not directly relate to their own services or products – such as certain HR and Financial responsibilities; payroll and bookkeeping for instance, as well as IT and Business Analytics. By outsourcing these competencies, companies are ensuring that they are employing specific expertise within a certain business function which might not exist internally. This helps to improve efficiency and productivity because not only is the company able to focus on those tasks which are essential to their own core duties, they are in addition offloading those peripheral tasks to external entities who are able to complete them more successfully than the business itself. This streamlining of essential core internal responsibilities and the outsourcing of those which are considered nonessential can lead to a competitive edge in the market place, as well as significant savings on labour costs and staff training. A company which outsources its IT function might also have access to the most up to date technology – as well as valuable technical support – without having to purchase the same technology and update it every couple of years or so.
I think the best analogy can be drawn by going back to the individual. Let’s say someone wanted an Excel spreadsheet built which could track their daily and weekly exercise goals, with some typical formulas calculating averages and maximums and conditional formatting to show highs and lows. Now if that person isn’t familiar with Excel for anything more advanced than simple data entry, what are their options? They could learn how to do it themselves by maybe spending money on a course, or by at least taking time to learn online or from a book, or they could get someone else to do it by paying a small fee (assuming a friend doesn’t offer to do it for free!). In the first instance, it might not be worth spending money and time to learn these specific skills, especially if this is a one off task and the person has better things to with these resources, so it makes sense to outsource the task to an expert and pay a one off fee. This is essentially the crux of outsourcing and applies to companies as well as individuals.
That’s it for now. I’ll discuss the industry itself in more depth in a future post, including industry trends and future developments.
Thanks for reading.