Outsourcing
Uploaded by barkhaamonkar on Sep 20, 2005
WHAT IS OUTSOURCING?
The idea of outsourcing has its roots in the 'competitive advantage' theory propagated by Adam Smith in his book 'The Wealth of Nations' which was published in 1776. Over the years, the meaning of the term 'outsourcing' has undergone a sea change. What started off as the shifting of manufacturing to countries providing cheap labour during the Industrial Revolution, has taken on a new connotation in today's scenario. In a world where IT has become the backbone of businesses worldwide, 'outsourcing' is the process through which one company hands over part of its work to another company, making it responsible for the design and implementation of the business process under strict guidelines regarding requirements and specifications from the outsourcing company.
The key to this definition is the aspect of transfer of control. This definition differentiates outsourcing from business relationships in which the buyer retains control of the process or, in other words, tells the supplier how to do the work. It is the transfer of ownership that defines outsourcing and often makes it such a challenging, painful process. In outsourcing, the buyer does not instruct the supplier how to perform its task but, instead, focuses on communicating what results it wants to buy; it leaves the process of accomplishing those results to the supplier.
There are two principal types of outsourcing:
Traditional outsourcing: - In "traditional" outsourcing, employees of an enterprise cease to perform the same jobs to the enterprise. Rather, tasks are identified that need to be performed, and the employees are normally hired by the service provider. For example, an information technology outsourcing may include a transfer of responsibility for management of data centers and networks (LAN, WAN, and telecommunications). In the field of facilities management, individuals acting as property managers might become employees of a facilities management company.
Greenfield outsourcing: - In "greenfield" outsourcing, the enterprise changes its business processes without any hiring of personnel by the service provider. For example, the enterprise might hire a startup company to provide a new service, such as wireless remote computing, that was not previously managed internally.
This brings us to the areas of outsourcing. Outsourcing takes place in the following three main fields:
Business Process Outsourcing: - It aims at providing optimal performance in critical enterprise processes. It provides industry-specific as well as cross-industry solutions, enabling clients to focus on core competencies and move to a higher level...