Reason of Outsourcing and its Types

Jan 17 • current affairs • 2863 Views • No Comments on Reason of Outsourcing and its Types

Outsourcing is the process in which the organization gives the recurring activities and the internal decision of the firm to a provider from the outside on the basis of a contract established earlier in order to focus on the core activities of the firm. Many firms outsource their non- core activities to focus on their main operations and generate revenue for the firm. outsourcing includes foreign as well as domestic contracting and sometimes include offshoring.

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Reasons and Benefits of outsourcing

Importance of Outsourcing

outsourcing impotance, strategies and types

There are many reasons and benefits that the firm goes to the process of outsourcing, these are as follows :

  • To maintain focus, flexibility and increased customer service on the basis of the operations of the organization.
  • It increases the performance of the organization, manage and control the operations of the firm, managing the risk of the firm, creating new ideas for the development, improving the image of the firm.
  • It helps in reducing the investment of the firm and help in generating more and more cash for the firm.
  • Helps in gaining access to the untapped market and increase the revenue and helps in the expansion of the firm’s business processes.
  • Reduce the cost incurred by the firm and helps in conversion of the fixed cost to the variable cost.
  • Helps in the motivation of the employees by providing them with lucrative incentives.

Levels of outsourcing

There are three levels of outsourcing process in the organization, these three levels are :

  • Individual level – it is the level in which the specific positions are moved out of the organization
  • Functional level- it is gaining specialized knowledge and responsibilities for the outsourced activities.
  • Process level – it is the method in which the product and service move out of the operations of the organization’s functioning.

Types of outsourcing

There are mainly two types of outsourcing processes which are :

  1. Tactical outsourcing- this involves in transferring only the basic operations to the outside providers without any considerations.
  2. Strategic Outsourcing- it involves the consideration for the future vision of the organization, focus on the current and the future core competencies of the firm, focus on the structure, cost, performance and competitive advantage of the firm and then transfers the operations to the providers from outside.
  3. Offshore Outsourcing :- In this external organization is hired to perform some business functions in a country rather than where the products or services are actually developed or manufactured.

Industry specific strategies for outsourcing

  • There are some growing challenges that are faced by the industries while moving towards the process of outsourcing.
  • The use of high technology in the industries in their operations
  • Challenges that have been faced by the mature industries
  • Challenges and issues faced by the fragmented industries

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