Outsourcing

OUTSOURCING

Meaning of Outsourcing

Recently a new type of business  in service sector has become popular in the world. It is called the Business Process Outsourcing (BPO). BPO refers to outsourcing the work which is routine in nature, to an outside agency. This practice was initiated in United States of America in  few companies. The routine work of  a company if outsources the company concentrate on critical issues without wasting time on routing job. In later years it became popular in other countries also. For example designing an advertisement, after sales service, maintance of accounts etc. can be outsourced.

The companies must identify their core competence and concentrate on that function and outsource all other routine function to outside agencies, who are specialized in those functions.

Features of Outsourcing

1. Transferring Non Core Activities to Outsiders

Companies can outsource those non core activities functions like maintenance, housekeeping, gardening, etc. to outsiders, depending upon the nature of the business and the activities are identified as core or non core activities.

2. Outsourcing Involves Contracting

As the companies start outsourcing their activities focusing on their main business, the outside agencies enter into an agreement with the company to perform the routine activities on a contractual basis.

3. Operational Efficiency through Outsourcing

Companies specialize in their business system as the time available at their disposal can be utilized for the core activities leading to efficiency improving quality of the product.

4. Improved Customers Satisfaction

The number of customers can be increased through timely delivery and high quality services. Outsourcing helps in customer satisfaction and results in repetitive purchase of the same product

5. Cost Reduction

The only way to survive and earn profit is through global competitiveness by fixing a competitive price. Division of labour and specialization along with good quality product reduces the cost. For example outsourcing of research and development, manufacturing, software development etc.

Core and Non Core activities

Companies can benefit in the long run provided they are keen on their core activities rather than non core activities. A core activity involves experience, expertise, efficiency and even investment in the field of specialization. Non core activities can be outsourced to outsiders who are specialists in their area of operation.

Benefits

1. Focusing on Core Activities

Companies can focus on their core competence, a few areas where the company has distinct capability. The rest of the activities (non core ) can be outsource to outside agencies.

2. To Fill up Economic Development

Outsourcing stimulates entrepreneurship, encourages employment opportunities, expands exports, enables tremendous growth of the economy.

3. Encourages Employment Opportunities

Companies that are outsourcing their non core activities provide chances for other small business units to take up the activities. This paves way for more job opportunities and new employment avenues.

4. Reduction in Investment

Companies through outsourcing avails the services of outsiders which in turn reduces the investment requirements. The amount so available can be utilized productively and this increases the profits.

5. Quest for Excellence

Outsourcing enables the firms to pursue excellence in two ways namely excelling themselves in the activities they do and excel outsiders by extending their capabilities through contracting out.

Business Process Outsourcing (BPO) and Knowledge Process Outsourcing (KPO)

Meaning

BPO means getting contractual services of external companies or group of companies to complete special work or process of a company. For example call centres, data entry etc. This reduces the expenditure by using cheap labour available in developing countries like Indian, China etc.

Need for BPO

1. To focus on key function

2. benefit of specialization / efficiency

3. cost cutting

4. Economic growth and development

5. Increasing profit

6. Catering to the dynamic demand

Knowledge Process Outsourcing (KPO)

Meaning

KPO refer to outsourcing of Knowledge based Process. It means obtaining  high  end knowledge work from outside the organization in order to run the business successfully and in cost effective manner. In short KPO firms get knowledge related, information related, work done from outside firm and it involves high value work carried highly skilled staff.

Need for KPO

1.        Usage of best skills

2.        Ultimate use of knowledge

3.        Finding solution to complex problem

4.        Reduction of expenditure

5.        Special focus on principal functions

6.        Outsources reduces risk