History of Outsourcing
In fact outsourcing is said to have emerged a few thousand years ago with the production and sales of food,
tools and other household appliances. As soon as small communities and societies began to form, people
with specialized professions began to trade with each other for goods and services. In effect it can be said
that each worker was outsourcing some activities to others. The history of outsourcing shows that even in
the industrial age, a few thousand years later, very few companies outsourced any of their operations.
Companies in the 1800s and 1900s were vertically integrated organizations, taking care of their own
production, mining, and manufacturing from raw materials to finished goods as well as then shipping the
goods to company owned retail outlets. These companies were often self-insures, handled their own taxes,
employed their own lawyers, as well as designed and built their own buildings without outside assistance.
This of course is not applicable to all companies during that time period, but it gives a general idea of the
time.
The history of outsourcing shows that through specialization contracting began to be more popular,
especially in the service industry. This in turn led to the first wave of outsourcing during the industrial
revolution pushing the large-scale growth of services such as insurance services, architecture and
engineering services, among many others. At this time the companies doing the outsourced work were
mostly located in the same country, often in the city, just like the customers.
The history of outsourcing portrays that as onshore outsourcing continued manufacturing outsourcing of
low-tech items such as toys, shoes and apparel goods began to take place. After this manufacturing higher
value items like high-tech components and consumer electronics began to appear. In fact outsourcing
history demonstrates that manufacturing was the first activity that began to move to offshore destinations in
a quest for lower costs. Through the development of infrastructure as transportation and logistics improved,
the costs decreased and offshore manufacturing increased. As the education and skills on lower wage
countries developed, outsourcing manufacturers gained more value. More recently, in the US during 1970s,
it was common for computer companies to export their payrolls to outside service providers for processing.
This continued into the 1980s, when accounting services, payroll, billing, and word processing all became
outsourced work.
Towards the end of modern day history of outsourcing, the trend has moved into the world of information
technology, data transcription and call center operations. Studies on the history of outsourcing conclude that
outsourcing is clearly not just about payrolls and call centers. This can be seen by simply looking into your
medicine cabinet. It is very likely that the R&D of your daily medicine was outsourced to companies in India.
Your insurance company which covers the costs of your medications may have their claim processing to
offshore transcription providers. And your medical clinic may easily be outsourcing the administration of
your confidential medical records to India, Russia or the Philippines.
Advantages of Outsourcing
The Outsourcing market is estimated to grow tremendously in the coming few with an increasing
number of companies planning to outsource both low end and high end jobs to offshore destinations.
Also the number of companies providing outsourcing services is on the rise, thus resulting in larger
variety. Due to the fact that more and more companies are outsourcing, the risks are getting smaller as
businesses have more experience and clearer objectives.
There are several marked advantages of outsourcing:
1. Concentration on core business areas
Back office operations of a company require high maintenance and specialized attention. Yet most of
them are critical for the company's everyday activities. By outsourcing their back office operations
businesses can concentrate on their core competencies while their back office operations are being
managed smoothly by a specialized third party company.
2. World-class technology at lower rates
Investing in new technology is very costly and often risky. As the technology market develops rapidly, it
is difficult to keep up with latest innovations and solutions. Thus outsourcing to companies that have the
resources, expertise and desire to continuously update their technological solutions, offers a true
advantage of outsourcing.
3. Skilled manpower at affordable prices
Outsourcing gives a company the ability to get access to skilled and trained man power at extremely low
rates. This in turn leads to an increase in productivity as well as cost savings. By outsourcing a company
saves on recruitment, training and other human resource costs it would otherwise have to maintain
internally. Also an advantage of outsourcing is that a company is able to utilize the kind of expertise it
could not internally provide.
4. Increased productivity
By employing skilled manpower in larger numbers at lower costs companies can really increase their
productivity. This in turn would result in better customer satisfaction and increased profitability.
5. Beat Competition
In today's fast paced global economy a company needs to provide high-quality services to its customers
in order to retain them, as well as provide the services for cheap prices. Outsourcing in this case can
help the company maintain lower rates with better service solutions, thereby giving them a better
market position or even a competitive advantage.
6. Tax benefits
By selecting the right BPO destination companies can save up on taxes in turn saving on costs.
Disadvantages of Outsourcing
Although there are several reasons in favor of outsourcing, a company must also consider the
disadvantages of outsourcing. There are risks that need to be analyzed whenever a company embarks
on a new business venture. Even though outsourcing is often the right solution for companies, one
should not outsource simply for the sake of outsourcing. Several benefits and value addition have to be
realized in order for companies justify outsourcing. It is a hot trend nowadays and seems an attractive
option for many, but if the risks are not considered in detail, the disadvantages of outsourcing may
dominate the advantages.
Lately however, the concept of outsourcing has been criticized. The negative attitudes toward offshore
outsourcing have been mostly discussed by parties in the US and UK, due to job losses in the mentioned
countries. Some people in countries like the US, feel that outsourcing is threat to their economy.
Outsourcing jobs to offshore destinations, is causing unemployment in the minds of some people. It
cannot be denied that the immediate effects of outsourcing such as lay-offs as well as the shifting of
production and jobs to foreign locations causes problems many employees. Both high and low-end jobs
are moving out of the US causing people to loose jobs. The needs of companies, national economies and
those of individual people often clash.
The disadvantages of outsourcing may include the following:
· Loss of managerial control, because it is more difficult to manage outside service providers than
managing one's own employees working possibly in the same building.
· Often the hidden costs are difficult to calculate or prepare for. These include legal costs related to
putting together a contract between two companies and the time spent to coordinating the contract.
· Another disadvantage of outsourcing can be a threat to security and confidentiality. If your company is
outsourcing processes like payroll, medical transcriptions or other confidential information, a company
must be very careful in choosing which process it wants to outsource and to which provider.
· A possible loss of flexibility in reacting to changing business conditions, lack of internal and external
customer focus and sharing cost savings may also be a disadvantage of outsourcing.
· Other disadvantages of outsourcing may include unfavorable contract lengths, loss of competitive
edge, problems in contract renewal, and contractual misunderstandings.
Human Resource Outsourcing
Human Resource Outsourcing is a process in which a company uses the services of a third party to take
care of its HR functions. A company may outsource a few or all of its HR related activities to a single or
combination of service provides located in offshore destinations like India, China, Philippines, etc.
Human Resource Outsourcing that includes HR recruiting outsourcing helps cut costs, helps concentrate
on core business and most importantly helps in ensuring employee satisfaction. By Human Resource
Outsourcing companies can save huge amounts of money and be free of complications that are
otherwise involved in maintaining an internal HR department. By doing so, companies can concentrate
on their core competencies saving their valuable time and resources. Some industry sources believe that
Human Resource Outsourcing is the future, making the next generation of in-house professionals simply
integrators of the company's outsourced services.
The basic services offered by Human Resource Outsourcing firms may include:
. Overseeing organizational structure and staffing requirements
. Recruiting, training and development
. Tracking department objectives, goals and strategies
. Employee and manager training
. Benefits administration
. Employee orientation programs Businesses who outsource HR are typically small to midsize firms with
between 25 and 1,500 employees.
. Providing you with skilled professionals who are focused specifically on HR
. Helping you reduce and manage operating costs
. Improving employee relations If you need to hand off the entire HR function, consider a professional
employer organization
If you don't need the comprehensive services, you can contract specific projects through an Human
Resource Outsourcing firm to help you:
. Implement a human resource information system
. Create or update employee handbooks and policy manuals
. Develop and implement a compensation program
. Create or review a performance appraisal system
. Write and update affirmative action plans
. Provide sexual harassment training Referrals, the yellow pages and the Web are the best resources for
finding an HR outsourcing provider.
Whether you're looking to outsource the entire HR function, a portion of it or a specific project, it's good
to know you've got options - lots of them.
HR Outsourcing Services
An increasing number of major businesses are outsourcing their human resource operations today. Some of
HR Outsourcing Services on offer are Payroll operations, benefits administration, employee data records
and management, asset management services.
Developing and maintaining the HR processes and technologies necessary for effective delivery of HR
Outsourcing Services requires a depth of human capital management expertise. Still, senior executives
insist that delivering HR services well is mandatory.
HR Outsourcing Services generally fall into four categories: Professional Employer Organization, Business
Process Outsourcing, Application service providers, or e-services. When you outsource HR functions, some
HR Outsourcing Services go with the "all-or-nothing" approach, requiring that they handle all your HR
functions or none at all.
Typical services include:
. Payroll administration: Produce checks, handle taxes, and deal with sick time and vacation time.
. Employee benefits: Health, Medical, Life, 401(k) plans, cafeteria plans, etc.
. HR management: Recruiting, hiring, and firing. Also background interviews, exit interviews, and wage
reviews.
. Risk management: Workers' compensation, dispute resolution, safety inspection, office policies and
handbooks.
Some HR Outsourcing Services are full-service and will provide these as well as additional services like
on-call consultants, who will come in to train or even settle a dispute.
HR Outsourcing Services help clients resolve this dilemma, by helping you outsource the activities that
get in the way of the things necessary to support growth. HR Outsourcing Services are able to offer a
complete range of HR outsourcing services along with a full complement of HR consulting services. Their
operations serve organizations from 5,000 to 500,000 employees across virtually every industry.
One of the reasons to use HR Outsourcing Services is to streamline processes and make them more
transparent to employees. Technology is usually a key in achieving it.HR Outsourcing Services also help
preserve the sanctity of information between employee and employer. HR Outsourcing Services offer a
strategic initiative to cut costs and access to intellectual capital not available in-house.
HR Outsourcing Services are becoming more sophisticated. CEOs are involved to ensure the long-term
success of strategic offshoring decisions. On their part, suppliers understand that they must compete
globally and that outsourcing will play a more transformational and strategic role for the client.
The HR department used to be treated as a cost-consuming function. CEOs understand that a Human
Resources department is a critical component of employee well-being in any business, no matter how small.
This has led to HR Outsourcing Services tasks like payroll, benefits, education/training, recruiting,
personnel administration, organizational development and workforce management.
A Gartner Focus Report echoes that thought: "Only those companies ready to address the necessary
transformation of their HR processes will find that outsourcing will bring access to world-class processes,
competitive advantage, and increased shareholder value."
