Outsourcing is the handing over of a business process to an external service vendor. The service vendor will take on the responsibility of daily operations and continuance of the entrusted process.

There are a number of diverse types of outsourcing. Some companies outsource limited functions, while others outsource entire operations. Let’s take Microsoft for example; their entire manufacturing process is outsourced. Naturally, fees are involved in outsourcing depending on the services required, and in cases like Microsoft, the contract can run into millions and billions of dollars, and it becomes common for the client’s employees to be transferred to the vendor company. Companies such as IBM, HP, EDS and Accenture are some of the leading outsourcing companies offering their services.

Those who outsource entire operations can be categorized in two; Information Technology Outsourcing (ITO) and Business Process Outsourcing (BPO). The later is sub-divided into call centre outsourcing (CCO), human resource outsourcing (HRO), finance and accounting (FAO) outsourcing, and claims processing outsourcing (CPO).

1. Information Technology Outsourcing (ITO)
2. Business Process Outsourcing (BPO)
2.1. Call Centre Outsourcing (CCO)
2.2. Human Resource Outsourcing (HRO)
2.3. Finance and Accounting Outsourcing (FAO)
2.4. Claims Processing Outsourcing (CPO)

Essentially, any business process can be handed over to outsourcing companies. Most common processes are marketing, web design & maintenance, web hosting, IT maintenance, manufacturing, accounts, recruitment, switch board (telephone answering), logistics, distribution (i.e. of newsletters, mail shots), editing (i.e. of articles, newsletters).

There are countless reasons why a business should consider outsourcing. Some businesses may lack of existing skills necessary to complete a process, turning over this process to outsourcing companies may guarantee a higher success rate than if the business itself runs it.

Another reason is that the process may be difficult to control, in general, or perhaps due to business growth. Experienced outsourcing companies already have the necessary skills and knowledge to manage the process for you. Additionally, the process can be performed better, cheaper, and faster too.
If a firm has poor internal service, which may or may not be connected to lack of skills, or sometimes, a company may find itself lacking the resources, or the resources are not available in-house at all, in order to complete the process, such as the case for smaller companies. Outsourcing companies can provide the win-win solution.

Other reasons may be that you require your employees’ time elsewhere in the business and the process may not contribute to competitive advantage. Outsourcing helps companies to streamline their business operations by allowing them to focus on core income generating activities.
Outsourcing companies gives businesses access to professional capabilities, therefore leveling the playing field for smaller companies. It minimizes risks by sharing it between the company and the outsourcing provider – who has the skills and experience for managing the risk better, giving businesses peace of mind that the process is in good and reliable hands.

With outsourcing, firms do not have to worry about constantly initiating new technologies to keep them competitive. A good outsourcing vendor will already have this covered for them. Outsourcing frees up human resources, letting companies focus their employee’s activities on more crucial tasks. Outsourcing frees up cash flow by converting fixed costs to variable costs. Furthermore, it improves service quality, increases the control of your business, and enables the business more flexible to change/demand.