Outsourcing: Its benefits, its problems and its future

Outsourcing: Its benefits, its problems and its future

Introduction

Increase in globalization has drastically removed barriers on the nature of performing work. Companies are constantly looking for ways to gain competitive advantage in order to remain ahead of other companies, gain profits and increase their overall market presence. With the increase of diversifying companies continue to expect growth in profits even though diversifying requires expanding into multiple layers of management. Companies identified methods of developing strategies that focused on the core business in order to compete globally. This phenomenon gave rise to the term outsourcing (Flatworld, n.d).

In simple words outsourcing can be defined as the strategic use of outside help in order to perform activities traditionally dealt with and performed by internal staff. Outsourcing is also termed as facilities management. Outsourcing is basically a strategy by which a company contracts out major functions to specialized services who then become valued business partners. Companies usually hire contractors for particular kind of work or to meet deadlines and targets during the peak season, this creates a longtime relation between the companies that complement or supplement a company's work. Companies have started outsourcing because it helps reduce operating costs, improves the company's overall focus on core functions, helps gain world class capabilities, frees internal resources which can be utilized for other purposes, when insufficient resources are available people can outsource their work at a cheaper price (Flatworld,n.d).

History of Outsourcing

People consider outsourcing a new phenomenon whereas that is not the case. Many years ago our ancestors understood the importance of outsourcing, they knew that in order to excel and gain excellence it was necessary for them to give their work to third parties and focus on the core business principles. People with expertise in certain fields are all readily available at cheaper price. It was after the industrial revolution that this trend gained popularity amongst companies. The industrial revolution which began somewhere between 1750 and 1900 developed outsourcing profoundly, since there was an increase in the production of goods and sales. Many companies began outsourcing activities like marketing, accounting, and legal needs to specialized firms. Initially companies outsourced to other companies within the country. In the middle of the 20th century many drastic political and economic changes occurred, distance had lost its meaning manufacturers began outsourcing their production to less developed countries for many of these developing countries outsourcing was a blessing in disguise since it resulted in increase in employment (Handfieled, 2006).

With the IT revolution there came another stage of growth for outsourcing; by 1990 many companies had started outsourcing activities that were essential but not closely related to the core activities. Major outsourced activities included data processing and management and accounting, people started outsourcing on a personal level as well and hence this whole business unit was developed. Another recent event that brought back attention on outsourcing is the book by Tim Ferris called 4 hour work week, the book was released in 2007 and gives ...