Outsourcing - Learn About the Advantages and Disadvantages

In other words, outsourcing is the practice of getting certain job functions done outside a company. The process of outsourcing business functions is also ... OutsourcingThepracticeofgettingcertainjobfunctionsdoneoutsideacompanyHome›Resources›Knowledge›Strategy›OutsourcingWhatisOutsourcing?OutsourcingisastrategicdecisionCorporateStrategyCorporateStrategyfocusesonhowtomanageresources,riskandreturnacrossafirm,asopposedtolookingatcompetitiveadvantagesinbusinessstrategybyacompanytoreducecostsFixedandVariableCostsCostissomethingthatcanbeclassifiedinseveralwaysdependingonitsnature.Oneofthemostpopularmethodsisclassificationaccordingandincreaseefficiencybyhiringanotherindividualorcompanytoperformtasks,provideservices,orhandleoperationsthatwerepreviouslydonebyemployeeswithinthecompany.Inotherwords,outsourcingisthepracticeofgettingcertainjobfunctionsdoneoutsideacompany.Theprocessofoutsourcingbusinessfunctionsisalsocalledcontractingout.  Outsourcingcaninvolvelargethird-partyproviderssuchasIBMforITservicesorsimplyhiringtemporaryofficeworkersorindependentcontractors. CommonTypesofOutsourcedWorkThetypeofoutsourcingworkdependsheavilyontheneedsofthebusinessandtheindustrytheyoperatein.Themostcommonlyoutsourcedactivitiesinclude:ContentwritingCustomersupportserviceMarketing5P'sofMarketingThe5P'sofMarketing–Product,Price,Promotion,Place,andPeople–arekeymarketingelementsusedtopositionabusinessstrategically.The5P'sofSupplychainmanagementHumanresourcemanagementAccountingAccountingOurAccountingguidesandresourcesareself-studyguidestolearnaccountingandfinanceatyourownpace.Browsehundredsofguidesandresources.EngineeringResearchanddesignComputerprogrammingservicesTaxcomplianceFinanceFinanceCFI'sFinanceArticlesaredesignedasself-studyguidestolearnimportantfinanceconceptsonlineatyourownpace.Browsehundredsofarticles!Trainingadministration ExamplesofOutsourcingBelowareseveralexamplesofhowcompaniesoutsourcecertainfunctions:CompanyAisrapidlygrowingandisinneedofmoreofficespace.However,thecompanyissituatedinaveryexpensivelocationandthereisnoroomtoexpand.Thecompanycanoutsourcesomeoftheworkthattakesupofficespace(forexample,dataentryorcustomerservicesupport)toreducetheneedforadditionalspace.CompanyBenjoyedgreatsuccessoverthepastyearandiscurrentlylookingtoexpanditsproductline.However,thecompanyisconstrainedbyalimitedamountofworkers.Therefore,toexpanditsproductlinein-house,CompanyBwouldneedtoslowdownproductiononsomeofitsexistingproducts.Thecompanycanoutsourcetheworktoanexternallocalfactorytolessenitslaborconstraint.CompanyCisacarmanufacturerfacingincreasingrawmaterialandlaborcosts.Therefore,theprofitmarginonitsmanufacturedgoodsissteadilydecreasingascostsincrease.Thecompanycanoutsourcepartofitsproductionprocess,e.g.,themanufacturingandinstallingofwindowsintheircars.Assemblingtimeandcostscanbesavedbyoutsourcinganexpensiveproductionprocesstoanexternalcompanythatcandoitatacheapercost. ReasonsforOutsourcingThemostcommonreasonstooutsourceinclude:Reducingoperating,labor,andoverheadcostsFocusingmoreonthecompany’scorecompetencies,andthusimprovingitscompetitiveadvantagesbyoutsourcingtime-consumingprocessestoexternalcompaniesFreeingupinternalresourcesandusingtheresourcesforotherpurposesMitigatingriskbysharingriskswithexternalpartiesandbuildingmeaningfulpartnershipsImprovingflexibilityandefficiencybydelegatingresponsibilitiesthataredifficulttomanageandcontroltoexternalcompanies DisadvantagesofOutsourcingAlthoughthereareseveralreasonstooutsource,therearealsodisadvantagestothepractice,suchas:RiskoflosingsensitivedataandthelossofconfidentialitybyoutsourcingactivitiesorprocessestoexternalpartiesLossofmanagementcontrolandtheinabilitytocontroloperationsofactivitiesorprocessesthatareoutsourcedOutsourcingcompaniesmayimposehiddenorunexpectedcostsbycreatinglengthycontractualagreementswithlotsoffineprintLackofqualitycontrol,asoutsourcingcompaniesareoftenprofit-drivenratherthanfocusedondoingagoodjob RelatedReadingsThankyouforreadingCFI’sguidetoOutsourcing.Tolearnmoreandexpandyourcareer,exploretheadditionalrelevantCFIresourcesbelow.CompetitiveAdvantageCompetitiveAdvantageAcompetitiveadvantageisanattributethatenablesacompanytooutperformitscompetitors.ItallowsacompanytoachievesuperiormarginsCorporateDevelopmentCorporateDevelopmentCorporatedevelopmentisthegroupatacorporationresponsibleforstrategicdecisionstogrowandrestructureitsbusiness,establishstrategicpartnerships,ScalabilityScalabilityScalabilitycanfallinbothfinancialandbusinessstrategycontexts.Inbothcases,itstandsfortheabilityoftheentitytowithstandpressureStrategicAlliancesStrategicAlliancesStrategicalliancesareagreementsbetweenindependentcompaniestocooperateinthemanufacturing,development,orsaleofproductsandservices.GetAllFourPrograms(MonthlySubscription)LearnMoreCorporateFinanceInstituteBacktoWebsite0searchresultsfor‘’Peoplealsosearchfor:excelFreefreecoursesaccountingBalancesheetDCFIRRExploreOurCertificationsFinancialModeling&ValuationAnalyst(FMVA)®LearnmoreCommercialBanking&CreditAnalyst(CBCA)™LearnmoreCapitalMarkets&SecuritiesAnalyst(CMSA)®LearnmoreCertifiedBusinessIntelligence&DataAnalyst(BIDA)™LearnmoreResourcesExcelShortcutsPCMacListofExcelShortcuts 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