The term “Outsourcing” means delegating or passing on responsibility to a third party in pursuance with an agreement. The decision to outsource is a strategic one as it involves weighing the probable cost savings against the consequent loss in control over the product or service. Outsourcing involves a contractual agreement that defines how the client and the vendor will work together. The growth of outsoucing is partly due to the changes in business philosophy that have occurred over a period of time.Earlier companies aimed to acquire other companies and diversify their business As companies found it diffult to manage a large group of unrelated business they starting focusing their attention “core competence areas”.
Considering their unique experience and expertise the companies took efforts to identity the core competence areas that would help them gain a competitive edge over others in the market as the client companies usually outsource to a vendor that specializes in a given function and performs that function more efficiently than the company could do thereby saving on the cost. Companies also outsource to reduce the work burden of its employees and also to relieve them of tedious tasks thereby enabling them to develop their core competencies. Companies outsource information technology functions in order to gain access to new technology and outside expertise.
Outsourcing requires a good understanding of the vendor organization’s capabilities and their future plans. Outsoucing can be total outsoucing or selective outsourcing. Total outsourcing occurs when the client dismantles the entire departments or divisions and transfers the complete responsibility to an outside vendor. Selective outsoucing occurs when the the client identifies specific time consuming activities which can be handled more effectively by an specialist (vendor) and outsources it.
The various factors that are to be considered while choosing a vendor are firstly whether the vendor has experience in providing service that the client wants to outsource. Secondly it is essential to find out whether the vendor has been able to provide quality services to their clients. Thirdly the client analyses on the details like the technology, software and the infrastructure of the vendor. Fourthly it is essential to check if the vendor has skilled personnel nessary to ensure successful completion of the outsourced project.