Cost savings — The lowering of the overall cost of the service to the business. This will involve reducing the scope, defining quality levels, re-pricing, re-negotiation, and cost re-structuring. Access to lower cost economies through offshoring called "labor arbitrage" generated by the wage gap between industrialized and developing nations.[10]
Focus on Core Business — Resources (for example investment, people, infrastructure) are focused on developing the core business. For example often organizations outsource their IT support to specialised IT services companies.
Cost restructuring — Operating leverage is a measure that compares fixed costs to variable costs. Outsourcing changes the balance of this ratio by offering a move from fixed to variable cost and also by making variable costs more predictable.
Improve quality — Achieve a steep change in quality through contracting out the service with a new service level agreement.
Knowledge — Access to intellectual property and wider experience and knowledge.[11]
Contract — Services will be provided to a legally binding contract with financial penalties and legal redress. This is not the case with internal services.[12]
Operational expertise — Access to operational best practice that would be too difficult or time consuming to develop in-house.
Access to talent — Access to a larger talent pool and a sustainable source of skills, in particular in science and engineering.[13][14]
Capacity management — An improved method of capacity management of services and technology where the risk in providing the excess capacity is borne by the supplier.
Catalyst for change — An organization can use an outsourcing agreement as a catalyst for major step change that can not be achieved alone. The outsourcer becomes a Change agent in the process.
Enhance capacity for innovation — Companies increasingly use external knowledge service providers to supplement limited in-house capacity for product innovation.[14][15]
Reduce time to market — The acceleration of the development or production of a product through the additional capability brought by the supplier.[16]
Commodification — The trend of standardizing business processes, IT Services, and application services which enable to buy at the right price, allows businesses access to services which were only available to large corporations.
Risk management — An approach to risk management for some types of risks is to partner with an outsourcer who is better able to provide the mitigation.[17]
Venture Capital — Some countries match government funds venture capital with private venture capital for start-ups that start businesses in their country.[18]
Tax Benefit — Countries offer tax incentives to move manufacturing operations to counter high corporate taxes within another country.
Scalability — The outsourced company will usually be prepared to manage a temporary or permanent increase or decrease in production.
Creating leisure time — Individuals may wish to outsource their work in order to optimise their work-leisure balance.[19]
Liability — Organizations choose to transfer liabilities inherent to specific business processes or services that are outside of their core competencies.
[edit] Implications
Vicki Davis on 19 Oct 09Excellent overview of Thomas Friedman's lecture at MIT which gives essential information on the history of globalization as written by a tenth grader. This is excellent writing and a nice overview of what he says in the fifty minute video. (She also embedded the video.) Excellent work. Miller also writes for Terry Freedman out of the UK, in a column called "Ask Miller" and I think her writing skills have been honed and improved as she has written for Terry as a ninth grader. She is a product also of the flat world as she has worked to write in a Google Doc for a person across the Atlantic Ocean!
