Understanding Outsourcing’s Value Proposition

With the outsourcing and offshoring frenzy in high gear, some companies think success is just a matter of choosing a decent vendor, negotiating hard, and then throwing the business over the wall. Not surprisingly, that doesn't work very well.

Organisation must strive to make their outsourcing processes as effective and seamless as possible, by leveraging solutions that integrate strategy consulting, program management, change management, human capital, tax, real estate and global sourcing.

Should your organisation outsource?

Managing a business can pull company leaders in many directions, multiplying their responsibilities, dividing their attention and hindering their efforts. In response, executives worldwide increasingly use outsourcing as part of their overall strategy.

Outsourcing has become a strategic business tool, not simply the latest buzzword or passing fad. Any function that does not directly create value for customers or shareholders is not "core" to a business. These functions can be appropriately outsourced if an outside provider can perform those tasks more cost-effectively.

By outsourcing financial, operational, and/or technology activities to third parties, organisations can streamline processes, reduce cost structure and improve performance. In short, they can hand the day-to-day operations of specific tasks along with associated burden to outsourcing service providers. All of this gives management the freedom to focus on emerging business opportunities.

How to prioritize your business functions for outsourcing?

Outsourcing is an effective strategy that can be used in all non-core areas of the business. To help you decide where to begin, you should evaluate each area for their performance, cost structure and relative age of the technology. Additional reasons for outsourcing may include:

Major technology upgrade expenditure is planned.

Start-up, spin-off or restructured organization without sufficient business infrastructure.

A merger or acquisition has resulted in a technology or process combination, putting pressure on support functions.

Management is focusing significant time and capital on support activities that are not bringing value to customers or shareholders.

Accounting or other support functions lack expertise, resources or technologies necessary to fulfill their role.

Technology resources are not keeping up with technology demands.

Acknowledgement and thanks for these article to Deepak Pareek, Head – Indian Research Advisory Group. He can be contacted at [email protected].