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What Is Strategic Outsourcing?

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  • Written By: Malcolm Tatum
  • Edited By: Bronwyn Harris
  • Last Modified Date: 04 August 2014
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Strategic outsourcing is the process of engaging the services of a provider to manage essential tasks that would otherwise be managed by in-house personnel. This is often done to allow a business to arrange the use of its assets to best advantage, and allow the company to move closer to the achievement of its goals. An outsourcing strategy of this type may be employed by businesses and other organizations of any size, and normally helps to reduce the cost of operations as well as allow available resources to be allocated to the other necessary functions that are still managed within the organization proper.

Many people tend to associate outsourcing with small companies that operate with limited budgets. This is often true, since a smaller business enterprise is likely to have limited resources. When this is the case, a strategic outsourcing effort may involve contracting with a provider to manage the process of generating invoices to customers, receiving those payments, and paying any outstanding debts using the proceeds from those payments. Thus, the outsourcing allows the small company to divert resources that would normally go to supporting an accounting department into other important areas, such as product development, marketing, or sales.

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Larger businesses can also make use of strategic outsourcing as a means of utilizing their resources to better advantage. For example, a business may choose not to maintain an in-house sales force, but contract out the sales effort to others who generate sales on behalf of the company. With this model, the business does not have to be concerned with the expense of salaries and benefit packages for salespeople. Instead, the business only has to provide the agreed-upon commissions for sales generated by the business partner, and any monthly fee charged as part of the contractual agreement between the two entities.

The core idea behind strategic outsourcing is to benefit in some manner from allowing outside entities to take over the operation and management of a given function. Those benefits can take many different forms. Often, the idea is to increase the bottom line of a company by reducing various operating expenses. At other times, the benefit has to do with having immediate access to professionals who specialize in handling the outsourced function, without the need to train personnel to take over those functions. The benefit may be a matter of convenience, allowing the business owner to not have to deal with necessary functions that he or she does not wish to deal with, or feels unable to manage with any degree of efficiency. As long as the benefits that are generated by the arrangement is considered sufficient by the client, then the process of strategic outsourcing can be considered a success.

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Discuss this Article

anon120046
Post 6

I am a student and there is not a lot of accessible journals/articles available on this subject. I am seeking help on finding literature reviews on strategic outsourcing. Would anyone be able to point me in the right direction? Any help would be very much appreciated.

GreenWeaver
Post 5

Subway11-I know that human resource outsourcing is usually the first department to be outsourced when a company is cutting costs.

There are companies called a PEO, or professional employee organization in which they not only can run a companies payroll, but they can also lease employees to them upon their approval.

This really eliminates the payroll, recruiting, and benefit functions from the company. PEO’s usually offer the contractor a set of benefits as well. They also do background checks and even sponsor potential employees looking seek legal working status in the United States.

These are all such costly and time consuming aspects of human resources that these companies take on these task for a fee and do quite well. The fee is usually a surcharge above the independent contractor’s wages.

subway11
Post 4

Sneakers41-I had a friend that worked with Arise and she enjoyed the experience. She liked the flexibility of choosing her own hours and really appreciated being able to work from home and perform interesting work.

I know that information technology outsourcing is on the rise and involves the hiring of many independent contractors in India.

India produces a high level of information technology specialists especially in the field of programming that many tech companies hire these foreign workers to provide tech support for some of their tech products.

In India people speak English so this was a huge opportunity for tech firms to save a lot of money on salaries. India being a developing country the contractors in India do not get or expect high pay. Often it is one tenth of what a US worker would be making. This is strategic IT outsourcing that saves US companies a lot of money.

sneakers41
Post 3

Icecream17-I think the best thing is that they do not have to pay to run a call center and they do not have to pay an employee that is sitting idle waiting for a call as these contractors generally get paid per call, so if they phone does not ring the company does not have to pay anything for the service.

Another advantage for these client companies is that the pool of contractors tends to be more educated with over 50% having college degrees. These tend to be stay at home moms that had previous careers but wanted to stay home and raise their children.

In the past many strategic outsource ideas involved offshoring US jobs to foreign companies, but many customers complained that they were not able to be understood and the experience became difficult. This is yet another reason why these companies choose American workers and seek these strategic outsourcing solutions.

icecream17
Post 2

BPO outsourcing stands for business process outsourcing.

BPO is done when a company wants to outsource a specific function of its business operation. The mean reason that business outsourcing is growing is to reduce costs and enhance profits.

Outsourcing offshoring relates to hiring independent contractors to perform tasks that were normally performed by the company’s employees.

Often strategic outsource involves the customer service call center. There are many strategic outsourcing services that specialize in this niche. Arise, Working Solutions, Live Ops, and VIP Desk are just a handful of companies that hire independent contractors to service their client’s customer service and sales calls.

These workers work from the comfort of their own homes and adhere to a schedule in 30 minute intervals. These independent contractors not only are more productive and professional but they tend to stay with the arrangement much longer.

This not only produces greater results for the client companies, but the flexibility of offering time slots when they actually need people saves them a bundle.

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