In business, outsourcing involves the contracting out of a business Process to another party. Outsourcing sometimes involves transferring Employees and assets from one firm to another, but not always.Outsourcing can also characterize the practice of handing over Control of public services for-profit corporations. Outsourcing includes both foreign and domestic contracting, and sometimes includes offshoring that is relocating a business function to another country. The opposite of outsourcing is called insourcing. Insourcing entails the bringing processes handled by third-party firms in-house, and is sometimes accomplished via vertical integration. However, a business can provide a contract service to another business without necessarilyinsourcing that business process.

Outsourcing occurs when a company purchases products or services from an outside supplier, rather than performing the same work within its own facilities, in order to cut costs. The decision to outsource is a major strategic one for most companies, since it involves weighing the potential cost savings against the consequences of a loss in control over the product or Some common examples of outsourcing include manufacturing of components, computer programming services, tax compliance and other accounting functions, training administration, customer service, transportation of products, benefits and compensation planning, payroll, and other human resource functions. A relatively new trend in outsourcing is employee leasing, in which specialized vendors recruit, hire, train, and pay their clients' employees, as well as arrange health care coverage and other benefits.

The growth in outsourcing in recent years is partly the result of a general shift in business philosophy. Prior to the mid-1980s, many companies sought to acquire other companies and diversify their business interests in order to reduce risk. As more companies discovered that there were limited advantages to running a large group of unrelated businesses, however, many began to divest subsidiaries and refocus their efforts on one or a few closely related areas of business. Companies tried to identify or develop a "core competence," a unique combination of experience and expertise that would provide a source of competitive advantage in a given industry. All aspects of the company's operations were aligned around the core competence, and any activities or functions that were not considered necessary toPreserve it were then outsourced. Today, outsourcing is embraced by companies of all sizes and industry orientations. As analysts Tom Osmond commented in Employee Benefit News, many companies have decided that transactional and administrative functions are neither core competencies nor value-added activities. In fact, some companies are putting themselves at risk as a result of using outdated technology and not complying with government regulations. Vendors, by focusing on administration as part of their business model, provide better service enforced by contracts and service-level agreements. Successful outsourcing requires a strong understanding of the organization's capabilities and future direction. As William R. King explained in Information Systems Management, "decisions regarding outsourcing significant functions are among the most strategic that can be made byan organization, because they address the basic organizational choice of the functions for which internal expertise is developed and nurtured and those for which such expertise is purchased. These are basic decisions regarding organizational design." Outsourcing based only upon a comparison of costs can lead companies to miss opportunities to gain knowledge that might lead to the development of new products or technologies. Outsourcing can be undertaken to varying degrees, ranging from total outsourcing to selective outsourcing. Total outsourcing may involve dismantling entire departments or divisions and transferring the employees, facilities, equipment, and complete responsibility for a product or function to an outside vendor. In contrast, selective outsourcing may target a single, time-consuming task within a department, such as preparing the payroll or manufacturing a minor component that can be handled more efficiently by an outside specialist. Vendors providing outsourcing services are generally grouped into two models: Business Process Outsourcing (BPO) and Application Service Provider (ASP). In the BPO model, major resources and assets are transferred from the company to the vendor. Under the ASP model, on the other hand, vendors concentrate on providing selected services for multiple clients. But as Osmond told Employee Benefit News, many variations exist within these two models. "Each vendor has a particular focus and/or point of entry to the market, particularly in the ASP space," Osmond stated. "There is also a wide range of pricing models and option. The good news is that there is a seemingly endless combination of service, pricing, and delivery, providing a solution for most situations. The bad news is that it can be difficult to compare vendors on an apples-to-apples basis.

Two organizations may enter into a contractual agreement involving an exchange of services and payments. Outsourcing is said to help firms to perform well in their core competencies and mitigate shortage of skill or expertise in the areas where they want to outsource. Outsourcing can offer greater budget flexibility and control. Outsourcing lets organizations pay for only the services they need, when they need them. It also reduces the need to hire and train specialized staff, brings in fresh engineering expertise, and reduces capital and operating expenses.

There are various reasons why business organization involved in outsourcing. Companies primarily outsource to avoid certain costs, such as peripheral or "non-core" business expenses, high taxes, high energy costs, excessive government regulation/mandates, production and/or labor costs. The incentive to outsource may be greater for U.S. companies due to unusually high corporate taxes and mandated benefits, like social security, Medicare, and safety protection (OSHA regulations).At the same time, it appears U.S.companies do not outsource to reduce executive or managerial costs. For instance, executive pay in the United States in 2007 was more than 400 times more than average workersa gap 20 times bigger than it was in 1965. In 2011, twenty-six of the largest US corporations paid more to CEO's than they paid in federal taxes. Such statistics imply that the reason companies outsource is not to avoid costs in general but to avoid specific types of costs. One strong reason for outsourcing is the lack of available resources locally. This is particularly true for IT outsourcing, where the US has a lack of available resources. This knowledge gap can be felt more outside major cities. The digital workforce of countries like India and China are only paid a fraction of what would be minimum wage in the US. On average, software engineers are getting paid between 120,000 to 800,000 rupees ($4,000 to $23,000) in India as opposed to the $40,000-$100,000 in countries like US and Canada. However, unlike typical sweatshops and manufacturing plants, most of the digital workforce in developing countries has the flexibility to choose their working hours and which companies to work for. With many individuals working remotely from home, the companies that require this type of work do not need to allocate additional funds for setting up of office space, management salary, and employee benefits as these individuals are contracted workers. Another method of outsourcing is using a micro work service for repetitive tasks that would otherwise have to be performed by employees.

There are a lot of strategic implications whenever business organization undergoes outsourcing. Some of the strategic implications include the following:

MANAGEMENT PROCESSES: Greater physical distance between higher management and the production-floor employees often requires a change in management methodologies, as inspection and feedback may not be as direct and frequent as in internal processes. This often requires the assimilation of new communication methods such as voice over IP,instant messaging, and Issue tracking systems, new time management methods such as time tracking software, and new cost- and schedule-assessment tools such as cost estimationSoftware.

COMMUNICATIONS AND CUSTOMER SERVICE: In the area of call centers end-user-experience is deemed to be of lower quality when a service is outsourced. This is exacerbated when outsourcing is combined with offshoring to regions where the first language and culture are different. Foreign call center agents may speak with different linguistic features such as accents, word use and phraseology, which may impede comprehension. The visual cues that are missing in a telephone call may lead to misunderstandings and difficulties.

SECURITY: Before outsourcing, an organization is responsible for the actions oftheir entire staff, sometimes a substantial liability. When these same people are transferred to an outsourcer, they may not even change desks. But their legal status changes. They are no longer directly employed by (and responsible to) the organization. This creates legal, security and compliance issues that are often addressed through the contract between the client and the suppliers. This is one of the most complex areas of outsourcing and sometimes involves a specialist third-party adviser.

Fraud is a specific security issue as well as criminal activity, whether it is by employees or the supplier staff. However, it can be disputed that fraud is more likely when outsourcers are involved, for example credit-card theft when there is the opportunity for fraud by credit-card cloning. In April 2005, a high-profile case involving the theft of $350,000 from four Citibank customers occurred when call-center workers acquired the passwords to customer account and transferred the money to their own accounts opened under fictitious names. Citibank did not find out about the problem until the American customers noticed discrepancies with their accounts and notified the bank.

RISK OF EXPOSING CONFIDENTIAL DATA: When an organization outsources HR, Payroll and Recruitment services, it involves a risk if exposing confidential company information to a third-party

SYNCHRONIZING THE DELIVERABLES: In case you do not choose a right partner for outsourcing, some of the common problem areas include stretched delivery time frames, sub-standard quality output and inappropriate categorization of responsibilities. At times it is easier to regulate these factors inside an organization rather than with an outsourced partner

HIDEN COST: Although outsourcing most of the times is cost-effective at times the hidden costs involved in signing a contract while signing a contract across international boundaries may pose a serious threat.

LACK OF CUSTOMER FOCUS: An outsourced vendor may be catering to the expertise-needs of multiple organizations at a time. In such situations vendors may lack complete focus on your organizations tasks with all these pros and cons of outsourcing to be considered before actually approaching a service provider, it is always advisable to specifically determine the importance of the tasks which are to be outsourced. It is always beneficial for an organization to consider the advantages and disadvantages of offshoring before actually outsourcing it.

REFERENCES

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