Outsourcing as a Strategic Alternative

Outsourcing creates value through increasing strategic focus, improving processes, reducing costs, and eliminating risks. Outsourcing gives firms the ability to focus on their core competencies, leaving non-value-added activities to the outsourcing provider. Processes have the potential to be improved because outsourcing providers specialize in performing these services at a lower cost. Risk can be mitigated due to reduced investment levels and elimination of operating expenses. This makes companies more productive in weaker markets as they will have a lower cost structure. The risks of outsourcing include loss of operational control, process fit, loss of productivity, and exit barriers. Outsourcing is truly a partnership. Deriving value from a partnership requires effort from both participants. Businesses that consider outsourcing must be prepared to commit significant time and effort in making the relationship successful.