The driving forces:
Why are organizations outsourcing?

Outsourcing has moved from a niche technology management tool to a mainstream, strategic weapon for many firms. As the move to a multi outsourced environment accelerates, outsourcing has become the next new business critical process requiring that everyone who buys sells or manages IT services be re-skilled in this new methodology.

The business rationale behind BPO is that outsourcing saves money and focuses scarce management time and resources on a few core competencies. Outsourcing is the contracting out of a company's non-core, non-revenue producing activities to specialists. It differs from contracting in that outsourcing is a strategic management tool that involves the restructuring of an organization around what it does best - its core competencies.

As companies face increasing competitive pressure, they are searching for ways to remain focused, flexible and technologically competent, outsourcing addresses these needs in addition to giving organizations access to specialized talent. The real reason behind the surge in BPO is that companies are becoming more demanding. Cost-cutting and improved service levels are no longer the only result expected from outsourcing. The ultimate goal is to link business performance to increased business value.

Some of the expected benefits from outsourcing are:

• Cost reductions
• Improved service quality
• Superior competency
• Access to leading technology
• More freedom to focus on strategic activities
• Increased shareholder value
• Economy of scale
• Shared risk

Two common types of outsourcing are Information Technology (IT) outsourcing and Business Process Outsourcing (BPO). Most companies are looking to improve business performance through 3 critical drivers:

• Reduction in cost
• Focus on core business operations for competitive advantage
• Achieving superior customer satisfaction and use it as a competitive strategy