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HiSys HR - Outsourcing
Outsourcing is an arrangement whereby a 3rd party provider assumes
responsibility for performing in-house functions at a predetermined
price and according to predetermined performance criteria. It
is the strategic use of outside resources to perform activities
traditionally handled by internal staff and resources.
Why outsource?
Accelerate reengineering benefits
Reengineering aims for dramatic improvements in critical measures
of performance such as cost, quality, service and speed. But
the need to increase efficiency can come into direct conflict
with the need to invest in core business. As non-core internal
functions are continually put on the back burner, systems
become less efficient and less productive. By outsourcing
a non-core function, the organization can begin to see the
benefits of reengineering.
Access to world class capabilities
Outsourcing providers make extensive investments in technology,
methodologies, and people. They gain expertise by working
with many clients facing similar challenges. This combination
of specialization and expertise gives customers a competitive
advantage and helps them avoid the cost of chasing technology
and training. In addition, there are better career opportunities
for personnel who transition to the outsourcing provider.
Cash infusion
Outsourcing often involves the transfer of assets from the
customer to the provider. Equipment, facilities, vehicles
and licenses used in the current operations have value and
are sold to the vendor. The vendor then uses these assets
to provide services back to the client. Depending on the value
of the assets involved, this sale may result in a significant
cash payment to the customer.
When these assets are sold to the vendor, they are typically
sold at book value. The book value can be higher than the
market value. In these cases, the difference between the two
actually represents a loan from the vendor to the client that
is repaid in the price of the services over the life of the
contract.
Free resources for other purposes
Every organization has limits on the resources available to
it. Outsourcing permits an organization to redirect its resources,
most often people resources, from non-core activities toward
activities that serve the customer. The organization can redirect
these people or at least the staff slots they represent onto
greater value adding activities. People whose energies are
currently focused internally can now be focused externally
-- on the customer.
Function difficult to manage or out of control
Outsourcing is certainly one option for addressing this problem.
It is critical to remember that outsourcing doesn't mean abdication
of management responsibility nor does it work well as a knee
jerk reaction by a company in trouble.
When a function is viewed as difficult to manage or out of
control, the organization needs to examine the underlying
causes. If the requirements expectations or needed resources
are not clearly understood, then outsourcing won't improve
the situation; it may in fact exacerbate it. If the organization
doesn't understand its own requirements, it won't be able
to communicate them to an outside provider.
Improve company focus
Outsourcing lets a company focus on its core business by having
operational functions assumed by an outside expert. Freed
from devoting energy to areas that are not in its expertise,
the company can focus its resources on meeting its customers'
needs.
Make capital funds available
There is tremendous competition within most organizations
for capital funds. Deciding where to invest these funds is
one of the most important decisions that senior management
makes. It is often hard to justify non-core capital investments
when areas more directly related to producing a product or
providing a service compete for the same money.
Outsourcing can reduce the need to invest capital funds in
non-core business functions. Instead of acquiring the resources
through capital expenditures, they are contracted for on an
"as used" operational expense basis. Outsourcing
can also improve certain financial measurements of the firm
by eliminating the need to show return on equity from capital
investments in non-core areas.
Reduce operating costs
Companies that try to do everything themselves may incur vastly
higher research, development, marketing and deployment expenses,
all of which are passed on to the customer. An outside provider's
lower cost structure, which may be the result of a greater
economy of scale or other advantage based on specialization,
reduces a company's operating costs and increases its competitive
advantage.
Reduce risk
Tremendous risks are associated with the investments an organization
makes. Markets, competition, government regulations, financial
conditions and technologies all change extremely quickly.
Keeping up with these changes, especially those in which the
next generation requires a significant investment, is very
risky. Outsourcing providers make investments on behalf of
many clients, not just one. Shared investment spreads risk,
and significantly reduces the risk born by a single company.
Resources not available internally
Companies outsource because they do not have access to the
required resources within the company. Outsourcing is a viable
alternative to building the needed capability from the ground.
New organizations, spin-offs, or companies expanding into
new geography or new technology will consider the benefits
of outsourcing from the very start. |
HiSys HR Strengths
Outsourcing
