Outsourcing of business processes is an organizational practice wherein a company solicits a third party to conduct various activities on its behalf. This solicitation is usually done under contract to a company that either specializes or has the technical know how to best perform those particular activities. Though outsourcing has been around for years; initially existing mostly as accounting outsourcing, its use has only recently become wide spread. This can be attributed in part to the dynamism of the business environment and the continuous pursuit for higher profits at lower costs.
The main goals in outsourcing of business are to reduce operational costs and focus on meeting the primary objectives of the organization. As a result the activities that are outsourced include operational activities such as billing, payroll and customer service call center services. To get a clear view of business process outsourcing, it can be separated into two categories; front and back office outsourcing. The first deals with activities that cater to the consumer while the second deals with processes that deal with employees and internal office operations.
Outsourcing of business in front office, includes activities such as advertising and marketing, consumer service and technical assistance through call centers. Outsourcing of such activities has the positive effect of improving the organization’s bottom line however in some cases it negatively affects them by tainting their customer’s perception of them. Examples of outsourced activities that turn consumers in the USA off are the offshore call centers. Outsourcing technical assistance to foreign countries drastically cuts operational costs but it also increases customer dissatisfaction. Most consumers in North America argue that these offshore center employees are not only hard to understand; due to heavy foreign accents but are also not much help; as the assistance they give is often scripted.
The second category in outsourcing of business processes deals with activities such as logistics, human resource, job recruitment, insurance, credit analysis and collection services. By using this technique organizations can reduce the number of departments they have and in relation personnel. Thus management of the company becomes easier and they can retain a pool of capital that can be utilized for speculative purposes. As competition becomes stiffer and companies are forced to find new profit generating ventures, outsourcing is becoming more of a competitive strategy than an operational option. As with most organizational practices though there are proponents and opponents.
Proponents of outsourcing of business not only argue the improved bottom line but also enhanced services as most of the offshore locations they outsource to have a large base of cheap labor more qualified than their counterparts in the home country. Opponents on the other hand argue that the only benefits of the practice are to the organization and that the job seeking public and consumers do not receive adequate consideration. Unfortunately these criticisms have influenced government legislation and taxation that may eventually reduce the benefits of the practice.
Daven Michaels Author of the book Outsource This!