THE MAIN REASONS FOR OUTSOURCING

 

1. To reduce and/or control operating and maintenance costs.

• Lower inventory costs
• To make fixed costs variable (e.g., facility maintenance, distribution costs)
• Avoid reoccurring staffing costs
• To perform basic/mundane/less skilled/ dangerous/ grueling/ time-consuming/ repetitive/ routine tasks that can be done with cheaper labor/entry level people
• To create more competition

2. Help the firm redeploy resources to improve its focus on its core business
3. To provide access to world-class capabilities to:

• State of the art IT systems/ software that can integrate (gap-free) with other systems
• Executive/professional/legal/expert advice/information/ niche skills not normally available
• Training methods or training manuals
• Automation/ billing/ specialized/ sophisticated equipment/ customer service
• Infrastructure/space
• Foster innovation
• Avoid time and expense to build plants/train/ vet or certify/ speed approval/ cut red tape/ schedule work for people/ purchase equipment
• Perform critical tasks
• Address acute mismanagement by the firm

5. To free resources for other purposes
6. Firm’s resources are not available internally or at all

• Client has an immediate need for the outside service
• Firm has to bridge capability gaps until its own resources are available
• A rapid scale-up is required/ firm can’t hire fast enough
• Firm has experienced a rapid drop in head count

6. To accelerate reengineering efforts

• Streamline processes (brings cost-effectiveness)
• Reduce staffing
• Increase speed to market

7. Function is difficult to manage or is out of control

• Improve quality
• Superior logistics
• Protective/security services

8. To share risks

• Avoid exposure to the sponsor
• To perform miserable/dangerous work
• If the outsourcer is financially stable

9. To make capital funds available, by:

• Freeing it up
• Conservation
• To ease the financial situation on the client

11. Cash infusion – to grow revenue
12. To avoid:

• Labor conflicts
• Ethical conflicts of interest
• Management shortfalls

 

20. To have access to the best skills
21. When it is inappropriate for the firm to do the job
22. 24/7 availability is required
23. When firm is reluctant to use its own resources
24. When short term spikes in demand occur (and downsizing can rapidly occur once demand falls)
25. To perform quality assurance on the firm’s work
26. To comply with a regulatory or legal requirement
27. To allow the firm to develop additional business models
28. To escape from:

• High taxes
• Excessive government regulations and politics
• Restrictive union rules
• Costly full-time employee benefits, such as:
• health care,
• vacation,
• sick days,
• everance pay

(hopefully – their hourly wages are made higher as a result)

22. To gain access to political connections
23. To integrate/translate and make data and systems actionable