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Outsourcing is contracting with another company or person to do a particular function. Almost every organization out sources in some way. Typically, the function being outsourced is considered non-core to the business.

Although outsourcing has been around as long as work specialization has existed, in recent history, companies began employing the outsourcing model to carry out narrow functions, such as payroll, billing and data entry. Those processes could be done more efficiently and therefore more cost-effectively, by other companies with specialized tools and facilities and specially trained personnel.
Currently, outsourcing takes many forms. Organizations still hire service providers to handle distinct business processes, such as benefits management.

The process of outsourcing generally encompass four stages: 1) strategic thinking, to develop the organization’s philosophy about the role of outsourcing in its activities; 2) evaluation and selection, to decide on the appropriate outsourcing projects and potential locations for the work to be done and service providers to do it; 3) contract development, to work out the legal, pricing and service level agreement (SLA) terms; and 4) outsourcing management or governance, to refine the ongoing working relationship between the client and outsourcing service providers.

The short term benefits gained through outsourcing:

  • Ability to focus resources and attention on core business processes.
  • Reduced human resource management costs
  • Access as needed to specialized resources
  • Refinement of risk management, project management, and service delivery abilities.
  • Implementation of demand management and service delivery disciplines.
  • More accurate process management and support operations.

Typical long-term benefits include:

  • More predictable results-based budgeting for the outsourced function over the period of a certain outsourcing agreement.
  • Joint and interactive problem solving and creativity.
  • Superior management of the business operations portfolio.
  • Better management, contracting, and outsourcing integration skills.

The benefits of outsourcing thus include professional manpower, cutting-edge technology and cost savings. Through outsourcing companies receive flexibility in decision-making and companies are able to quickly set up or change certain operations or processes depending on the requirements at hand