Outsourcing involves purchasing the services of a different company or a firm to do the functions in an organization that are not considered to be a part of the core competency. For instance the organization can outsource the catering, office maintenance, data entry, transport etc to external agencies and focus its energy and effort on its primary function.

Outsource is a buzzword in today’s corporate world. Companies are jumping onto the outsourcing bandwagon in large numbers. Outsourcing, definitely, has its benefits such as reduction in cost. The greatest advantages are perceived to be in the cost of labor and in the reduction in timelines. However, the costs of vendor selections, transition costs and legal costs should also be considered when deciding on outsourcing.

Although outsourcing is beneficial, the decision to outsource is a very difficult decision. It involves careful analysis of not only the financial aspect but also other aspects such as employee morale, quality of service expected and other tax and legal aspects. The complexity of the implementation of the outsourcing exercise should be properly understood. Almost all outsourcing arrangement involves transfer of ownership and responsibility of assets. Some of these assets are people, hardware, processes and methodology.

Another important step in outsourcing is selecting the right partner for the outsourcing relationship. The provider of the service must guarantee the desired levels of quality.

The assessment of the capabilities of a “would be” provider should be carried out by an evaluation team before we reach a decision to outsource.

The following factors need to be ascertained before the final decision is made. 

- Does the prospective development competent have the skills and the abilities required for delivering quality service 
- Are the policies and procedures involved in delivering the product or service systematically followed? 
- Is the company aware of the applicable legislation and quality standards? 
- Are the values, standards and working styles consistent with those of our organization?

Outsourcing is usually considered when the management has one of the following things in mind :

- Reduction in managerial costs 
- Better technical support and customer care 
- Ability to focus on core competencies and skills 
- The recruitment of specialized personnel is not necessary.

Once, the decision to outsource has been made, the resources of the company that have been free by the outsourcing should be focused on the primary competency of the company and increase market share.

While outsourcing may seem fashionable and appealing in this era of stiff competition and drive to specialize, it must be borne in mind that outsourcing is not a panacea for all problems. It is not a substitute of sound organizational strategy. Even the most effective service provided by an external entity will not be useful if it is not integrated well into the organization. Deciding on the exact nature of the outsourcing and the selection of the right outsourcing provider go a long way in ensuring the success of the outsourcing relationship.