“Outsourcing” may be defined as the entrusting of non-core processes by companies with individual contractors or outsourcing companies instead of performing them in-house. This enables the outsourcing entity to free up personnel, cash, facilities and time to focus on activities that it does best or has a competitive advantage in. A hospital or healthcare facility, for instance may consider outsourcing staffing and/or the development and upkeep of its website to a service provider competent in the same so that it can concentrate on its core process of providing quality healthcare.
A key benefit of outsourcing is access to skilled labor for lower wages than that which would have to be paid for in-house workers. Other advantages that see businesses turning to outsourcing include:
- Access to particular IT skills
- Access to resources not available in-house
- Access to originality and thought leadership
- Lower continuing outlay for internal infrastructure
- More flexibility to cater to varying commercial and business conditions
- Predictable expenditure and therefore, tighter budget management
- Heightened efficiency
Segments or Categories
Outsourcing can be grouped into three key categories – BPO, KPO and ITO.
- Business Process Outsourcing (BPO) – This involves outsourcing of particular business process tasks that can be anything from product manufacture to customer care. It is typically divided into two types:
- Back Office Outsourcing – This usually has to do with internal business functions including billing or purchasing and payroll.
- Front Office Outsourcing – This usually pertains to customer-oriented services such as technical support and marketing.
- Information Technology Outsourcing (ITO) – This involves a company’s outsourcing of all or portions of IT functions to an outside party. An example of ITO is the outsourcing of programming. Though defined separately, ITO can be considered to be a subdivision of BPO.
- Knowledge Process Outsourcing (KPO) – This involves outsourcing of company processes that command superior technical, analytical and research associated skills. KPO work includes database development, data mining, pharmaceutical research and development, patent research and intellectual property research.
Companies may choose to outsource to an external party within their own country (onshore), in a neighboring country (nearshore) or in a distant country (offshore).