Outsourcing of services

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  • Another important trend in business, of late, has been ‘outsourcing’ of some of its activities i.e., use of outside sources to perform activities traditionally handled by internal staff and resources.

  • Many companies have started entrusting these tasks to outside agencies on contractual basis.

  • Outsourcing is a management strategy by which an organization contracts out its major non-core functions to specialized service providers with a view to benefit from their expertise, efficiency and cost effectiveness, and allow managers to concentrate on their core activities.

  • Outsourcing the operation of IT systems has been supplemented by a move to outsourcing the whole business processes such as payroll processing, cheques processing

  • This is known as BPO (Business Process Outsourcing).

Features of Outsourcing of Services

  • It involves contracting out an activity to an outside specialized agency which takes complete responsibility to handle it effectively using its own manpower.

  • Outsourcing is done in case of non-core activities such as housekeeping, security

  • There are two main forms of outsourcing the business processes

    • Outsourcing to a thirty party

    • Outsourcing to its own subsidiary company specially formed to handle a specific activity

Merits of Outsourcing of Services

  • It provides an opportunity to the organization to concentrate on areas in which it has core competency or strength.

  • It helps better utilization of its resources as the management can focus its attention on select activities and attain higher efficiency.

  • It helps the organization to get an expert and specialized service at competitive prices leading to provision of improved service and reduction in costs.

  • It enables expansion of business as resources saved from outsourcing can be used for expanding the production capacity and the product line and seek new markets.

  • Apart from financial returns

Limitations of Outsourcing of Services

  • It may be opposed by labour unions who feel threatened by possible reduction in their strength and prospects.

  • It reduces confidentiality as outsourcing involves sharing a lot of information with others.

  • Globalized outsourcing at times causes resentment in the manpower of the home countries who feel threatened by increased competition.

  • The organization hiring others may face the problem of loss of managerial control because it is more difficult to manage outside service providers than managing one’s own employees.

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