Why Do Companies Outsource? Consider 5 Benefits of Outsourcing

Outsourcing refers to an approach companies take to contract specific processes or tasks to another company or firm. A company that may lack specific expertise in certain areas of a project may outsource to fill the gap in the most cost effective way possible. Outsourcing allows a company to take on bigger projects or gain access to a unique skillset, often while maintaining costs and enabling stable growth.

Outsourcing became popularized in the 1990s when companies found it possible to increase revenue by contracting out processes to be managed by third parties. Companies could focus on their core competencies, while having other companies focus on other areas of need. Outsourcing is still a highly effective business strategy for many companies interested in increasing revenue by saving cost.

Through outsourcing, companies are able to pay for only those specific processes they need at the time they are in need. Outsourcing also significantly reduces the need for a company to hire and train staff for these specific processes which allows for reduced operating expenses.

5 Benefits of Outsourcing

Outsourcing has been a highly effective practice for companies in many different industries over the past two decades, perhaps especially for information technology and more specifically software development where there is often a huge demand for technical talent and a limited supply of available workers. Follow along to learn five major benefits of outsourcing:

  1. Cost Effective-Outsourcing allows companies to get many different types of jobs done at a lower cost. For companies that engage in offshore or nearshore outsourcing, often the work can be done at a fraction of the normal cost due to in part to regional wage differences. Outsourcing also allows the release of capital for investments elsewhere within a company.
  2. Focus on Core Business-Outsourcing allows a company to focus its attention on key processes and enables top performers in the company to set priorities for projects and products. Outsourcing also allows companies to increase its investments into essential areas such as research and development as well as brand management.
  3. Access to Expert Resources-A company may require a specific skill set or expertise that may not be a core competency of the business in order to complete a project. Outsourcing enables a company to find the best skilled experts in those areas of need while saving time and cutting costs by eliminating the need to recruit and train new employees within the company.
  4. Flexibility of Staffing-When faced with uncertain, cyclical or seasonal demands a company may need to bring on additional resources to help with specific processes or projects. Outsourcing allows a company to bring in extra resources at times of high demand and also allows them to reduce the work force when times are slower.
  5. Competitive Edge-Outsourcing will ultimately give a company a competitive edge. Strategic outsourcing to a reliable and experienced outsourcing partner can provide customers with the best available services by increasing productivity while managing in-company processes more efficiently.

Companies may employ a number of strategies in order to be highly successful and gain an advantage over the competition. Outsourcing has provided companies both large and small with the possibility to gain a competitive edge by providing the best product and/or service available through the most cost-effective and efficient means. Given the many benefits of outsourcing, it is highly likely that companies will continue to use this approach in the future.

David Easterling has been leading software development companies for more than 15 years. Recognizing a need to offer affordable custom software development and agile programming to U.S.-based companies, David founded Prosoft Nearshore in 2008, with offices in Louisville, Kentucky, and Escazu, San Jose, Costa Rica. David graduated from the University of Tennessee-Knoxville and is a Certified Scrum Master and active member of the Scrum and Agile User Group. For info about nearshore software development services, call toll-free: 1-866-320-6616.

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