Outsourcing is the purchase of any goods or services, which is necessary to run an organization from outside of that organization instead of relying on one’s own staff to provide for them (Credo Reference, 2007). There are numerous reasons for outsourcing such as it being cost affective, and specialist providers are going to much more up to date on particular practices and new technology advances. Lately, the term “outsourcing” has been described as receiving services from foreign countries because they can supply the same product and service, but at a lower cost. It is often common to hear the term “offshoring” paired with outsourcing because they both relate to the help of foreign countries. Offshoring is known as the transfer of service operations to foreign countries in order to take advantage of supply of people who are skilled but work for relatively cheap labor (Credo Reference, 2009). Again, the main reason the United State’s offshores is because it reduces the cost for their businesses.
There are four different types of outsourcing that commonly occur. The first type is known as process oriented. It is the procedure of farming out the business functions to a third party so that business goals are achieved smoothly (Assle, 2011). Businesses gain productivity, efficiency, excellence, and a low cost by following this process. The second type is known as operational outsourcing. This type provides a scale to businesses, and keeps fixed costs at a minimum. When helping to keep the costs at a minimum, it also allows companies to grow and contract in response to the continuous change in market conditions (Kinetrix Consulting, 2010). The key motivators of operational outsourcing are to reduce costs, the scarcity of resources available, and to focus on the company’s most important competency. According to Kinetrix Consulting, their six-step process of operational outsourcing is as follows: Establish a baseline, access the goals and alternatives, determine contract scope and terms, identify measures to support terms, negotiate performance levels, and measure audit reports and results. The third type of outsourcing is manufacturing. The main point of this is to cut down on the time of product. The fourth type of outsourcing is known as professional and is the most popular type, which could also be known as business process outsourcing. It is just the basic concept of outsourcing but is only done in a professional way.
Along with those four types of outsourcing, there are also two different forms, which are Information Technology Outsourcing and Business Process Outsourcing. Business process outsourcing includes call centers, human resources, finance, and accounting. The BPO outsourcing deals generally involve multi-year contracts that could run up to hundreds of millions of dollars.
The four main processes towards outsourcing are: 1) strategic thinking, to develop the organization's philosophy about the role of outsourcing in its activities; 2) evaluation and selection, to decide on the appropriate outsourcing projects and potential locations for the work to be done and service providers to do it; 3) contract development, to work out the legal, pricing and service level agreement (SLA) terms; and 4) outsourcing management or governance, to refine the ongoing working relationship between the client and outsourcing service providers (Sourcingmag, 2003). To be successful in outsourcing, it is important to understand that there needs to be executive-level...