Outsourcing

“Advantages of Outsourcing for Business Entrepreneurs“

Outsourcing is often viewed as involving the contracting out of a business function, in this sense; two organizations may enter into a contractual agreement involving an exchange of services and payments.

It is when a company takes part of its business and gives that part to another company. In recent times, the terms have been most commonly used for technology related initiatives such as handing over the IT help-desk to a third party. But it can also refer to non-technical services such as handing over the telephone based customer service department.  Outsourcing is a trend that is mainly becoming more common in information technology and other industries for services that have usually been regarded as intrinsic to managing a business.  Outsourcing can be defined as the assignment of specific work to a third party for a specific length of time at an agreed price or specific level.

There are non-strategic functions to outsource.

·         Secondary activities

-          These are task that must be performed properly to ensure the smooth running of the business. This includes your accounting, payroll and data processing functions.

·         Non-critical tasks

-          These are tasks for lower priority but still, need to be completed.

WHY SHOULD WE CONSIDER OUTSOURCING IN OUR BUSINESS?

First optimal utilization of your scarce resources, management should put their scarce resources to the highest value adding areas in your business or the most priority that the business needs the most for it to start. For example:  if you have limited funds as an investor, you should commit your funds to the core area of your business instead of investing them in a non-core function.

Effective Delegation of Man Power, in these days, recruiting, training, and retaining of good staff are no easy undertaking.

SO THE QUESTION IS WHY OUTSOURCING?

Mainly, economies of scale can save money when unit cost goes down as volume increases. External service providers can achieve economies of scale unavailable to individual firms when they combine the volumes of multiple companies. Outsourcing helps you save money.  It can also help you share risk. In investing, it’s best to diversify your portfolio rather than put all your money in one stock. By spreading your risk, you reduce your total risk.