(Solved Homework): What are the initial steps a business should take when outsourcing their product/ service, or one…

In layman terms, Outsourcing is transfer of some of the activities or functions of the organization to a third party who takes care of those activities.

Why outsourcing?

• The activity is not the core activity of the organization (deviation from the goals)
• More resources are being utilized for an activity hampering the performance of the core process
• Costs can be reduced due to outsourcing (related to human resources, material cost, technology etc.)
• The third party is better equipped to deal with these activities (they are good at that particular activity)
• The organization does not have expertise in the specific activity
• Repetitive tasks

Points to be considered by Third party who accepts to do those activities:

• Have we done it before and can this be replicated?
• Is it in line with our expertise?
• Do we have enough resources to handle the operation effectively?
• Can we do it better at lower costs?
• Do we need any special assistance or expertise?

Outsourcing involves:

• Transfer of human power, expertise and sensitive information related to product and organization
• Transfer of assets and financial cash flows
• Completion of activities on time within targets (achieved through continuous communicaton and resource sharing)

Other steps taken:

• Signing of MOU (Memorandum of Understanding) clearing explaining the objectives and other related information)
• Analysing the benefits or improvement achieived through outsourcing by identifying key performance indicators
• Sharing the risks and benefits
• To what extent is the outsourcing done?
  • Hiring staff according to requirement
  • Outsourcing of entire project
  • Building a dedicated development center which takes cares of activities at that location
  • Outsourcing an entire function or division