What is outsourcing?
What are the seven major outsourcing errors that should be avoided?
Outsourcing refers to an organization contracting out one of its business function to an external provider (Overby, 2007). The process of outsourcing involves two organizations mutually entering into a contractual agreement involving an exchange of services and payments.
Organizations in different sectors of industry outsource a wide variety of business functions for the following strategic reasons:
- Cost savings: An organization may decide to outsource a certain business function to reduce administration, labor, and other operational costs. Several organizations such as Sirion Therapeutics Inc. a pharmaceutical firm outsources manufacturing activities to reduce fixed costs and to focus on its core competencies.
- To focus on core business functions: Outsourcing enables organizations to focus on what they do best. It ensures organizations effectively utilize resources i.e. capital, people and infrastructures on building the core business.
- Cost restructuring benefits: Outsourcing helps organizations enhance operating leverage by ensuring that the fixed costs of the firm does not outweigh the variable costs.
- Improve quality: Outsourcing enables organization to improve quality of products or services offerings to customers. An organization may decide to outsource manufacturing activities to a third party because of the superior technical and man-power the outsourced firm possess.
- Knowledge management practice: Outsourcing enables organizations tap into the ...
The seven major outsourcing errors that should be avoided is determined