1. Reduce and Control Operating Costs
The single most important tactical reason for outsourcing is to reduce and control operating costs. Companies that try to do everything themselves may incur vastly higher research
development
marketing and deployment expenses -- expenses that have to be passed onto the ultimate customer. Today's customers are too sophisticated to accept the costs associated with an organization's attempt to maintain singular control over all its resources.
2. 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.
3. 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.
4. 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.
5. 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 which 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.
6. Function Difficult to Manage or Out of Control
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.
7. 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 should consider the benefits of outsourcing from the very start.
8. Access to World Class Capabilities
ManageWatch makes extensive investments in technology
methodologies
and people. We gain expertise by working with many clients facing similar challenges. This combination of specialization and expertise gives our customers a competitive advantage and helps them avoid the cost of chasing technology and training. |