What is outsourcing?
Outsourcing is frequently defined as “the strategic use of outside resources to perform activities traditionally handled by internal staff and resources”.
When did outsourcing start? There are examples of outsourcing going back to the 1950s. However the strategy picked up speed in the 1970s and 1980s as more U.S. companies found they could contract out some services and duties to other companies, foreign and domestic. It was formally recognized as a business strategy in 1989.
Why do companies outsource?
There are many reasons firms decide to outsource but often at the top of the list is to reduce costs and overhead. But there are other reasons as well. For instance, many products are designed or engineered in the U.S. but actually made and assembled overseas. The designers and engineers are here, but the factories and factory workers are already ready and able overseas. Additionally, some companies outsource because they want to focus on their core business and find it to time consuming or do not have the staff to build a new facility if necessary or oversee production of products or services.
If a company outsources work, does that mean workers for that company will lose their jobs? Of course each situation is different but often what happens is a combination of things: some workers are given new positions with the company while others are let go.
What makes outsourcing successful?
While the initial goals may be to cut costs, overhead, and management duties, what seems to make outsourcing most successful is if the goals, mission, plans, and strategic vision of the outsourcing company are understood by all.
Can outsourcing fail?
There are many cases where outsourcing has failed. In some cases, for instance manufacturing products overseas, the cost savings of a few years ago may no longer be realized. Further, there may be quality control issues. However, outsourcing is most likely to fail for the opposite reasons of what makes it succeed: if the goals and visions of the outsourcing company are shared.
