Outsourcing is referred to as the transfer of a business function or any process of a business function along with the associated operational activities and responsibilities
to an external service provider by the virtue of a contractual agreement that defines the scope of services. Under the agreement the supplier acquires the means of production of the client while the client gets the services of the supplier. Outsourcing involves the acceptance of better organizational synergies: cost reduction, productivity growth and innovative capabilities, to name a few.
A trend that started with manufacturing companies like Coca-Cola, who outsource supply chain in order to buy more time to concentrate on its marketing strategies ,BPO’s are increasingly venturing into newer and newer territories with each passing day. Based on the works that are being outsourced today, BPO’s providing services can be broadly categorized into the one that perform back office functions like offering accounting services etc and the companies that provide front office services like marketing and tech support.
Over the past few decades not only has the nature of outsourcing undergone tremendous change as the periphery of outsourcing has transformed from catering, cleaning etc to more critical activities as accounting but also from outsourcing within the domains of ones territorial boundary to destinations beyond the limit of ones national boundary. Today companies are willing to form outsourcing alliances for even critical functions like accounting with offshore service providers. This way, they leverage on the specialised skills and expertise of vast number of professionals in low cost destinations as India.
The singular factor that has made possible all these outsourcing activities in today’s globalized arena is the explosion in the number of users of the internet which has diminished national boundaries and in the process has let people across the world interact as next door neighbors. And as the world gets wired into an information highway, this transportability of jobs is definitely going to increase manifold. Add to this the advantage arising out due to difference in time zone between the client and vendor nation, which provides a scope to do a sequential task during normal day shift in different time zones -to make it seamlessly available 24x7 and it becomes easy to understand that outsourcing is not only about file transferring but also myriad other reasons like
> Spectacular cost savings by accessing lower cost economies through outsourcing generated by the wage gap between industrialized and developing nations
> Services provided by BPO vendors are generally on a fee-for-service basis. This helps a company becoming more flexible by transforming fixed into variable costs.
> Outsourcing provides a firm with increased flexibility in its resource management and reduces the response time to major cyclical fluctuations.
> An outsourcing client gets enough time to focus on its core competencies without being burdened by the demands of bureaucratic dictate as in the case of Coca Cola who got more time to strategize their marketing policies.
> Outsourcing critical functions like accounting gives organization the flexibility to increase the speed of business processes.
> An improved method of capacity management of services and technology where the risk in providing the excess capacity is borne by the supplier.
Advantages to outsourcing are many and organizations today are quick to realize the importance that outsourcing of critical non core functions like accounting to low cost destinations like India gives them. It is not only about cost benefit but also a definite competitive edge in today’s troubled business environment.
About the author:
Sukant Senapaty
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