Types of Outsourcing

while running a web design development company, What is the role of Outsourcing?

Outsourcing began in the early eighties when organizations started delegating their non-core functions to an external organization that was specialized in providing a particular service, function or product. In outsourcing, the external organization would take on the management of the outsourced function.

Most organizations choose outsourcing because outsourcing offers a lot of advantages. When organizations outsource to countries like India, they benefit from lower costs and high-quality web application development services. Moreover organizations can concentrate more on core functions once they outsource their non-core functions. Outsourcing can also help organizations make better use of their resources, time and infrastructure.

In outsourcing, the outsourcer and the outsourcing partner have a greater relationship when compared to the relationship between a buyer and a seller. In outsourcing, the outsourcer trusts the outsourcing partner with vital information. Outsourcing is no longer confined to the outsourcing of IT services. Outsourcers in the US and UK now outsource financial services, engineering services, creative services, data entry services and much more.

Most organizations are opting to outsource because outsourcing enables organizations to access intellectual capital, focus on core competencies, shorten the delivery cycle time and reduce costs significantly. Organizations feel outsourcing is an effective business strategy to help improve their business.

What is Insourcing?

The opposite of outsourcing can be defined as insourcing. When an organization delegates its work to another entity, which is internal yet not a part of the organization, it is termed as insourcing. The internal entity will usually have a specialized team who will be proficient in the providing the required services. Organizations sometimes opt for insourcing because it enables them to maintain a better control of what they outsource. Insourcing has also come to be defined as transferring work from one organization to another organization which is located within the same country. Insourcing can also mean an organization building a new business centre or facility which would specialize in a particular service or product.

Organizations involved in production usually opt for insourcing in order to cut down the cost of labor and taxes amongst others. The trend towards insourcing has increased since the year 2006. Organizations who have been dissatisfied with outsourcing have moved towards insourcing.

Some organizations feel that they can have better customer support and better control over the work outsourced by insourcing their work rather than outsourcing it. According to recent studies, there is more wok insourced than outsourced in the U.S and U.K. These countries are currently the largest outsourcers in the world. The U.S and U.K outsource and insource work equally.

What is best for your organization?

If your organization has a number of non-core processes which are taking plenty of time, effort and resources to perform in-house, it would be wise to outsource these non-core functions. Outsourcing in this case, would help you save on time, effort, manpower and would also aid you in making quicker deliveries to your customers.

If you require expertise services in areas which do not fall under your core competency, then outsourcing will be a good option as you can get access to expertise services. For reducing costs and making faster deliverables, outsourcing is again a good option.

If your work involves production, then it would be more ideal for your organization to opt for insourcing, as you can save on transportation costs and exercise a better control over your project.

It is not necessary to choose outsourcing over insourcing or vice versa. Your organization can outsource and insource at the same time. By outsourcing and insourcing simultaneously, you can have the best of what both offers and your business can get a competitive advantage!

Why consider offshore outsourcing to India?

Offshore outsourcing has been popular for several years. Countries like India are popular offshore outsourcing locations which offer cost effective web development solutions. There is a wealth of articles and write ups about the cost advantages of offshore outsourcing with a majority claiming anywhere between 40-50% savings.

However, offshore outsourcing has come under attack recently. There is an outcry against outsourcing by parties in the US and UK because of the loss of jobs to people in these countries. Many have pointed out actual costs and poor quality of service as the hidden truths behind the attractive packaging.

Offshore Outsourcing is not just about cost.

One should understand the need for offshore outsourcing better before making a decision. Cost is definitely one of the main reasons for offshore outsourcing to India, but one should realize that this cost advantage may not be seen immediately. Initial investment in infrastructure, training, and other such preliminaries may make one believe that the cost advantage promised is just the illusory pot of gold on the other side of the rainbow.

However, this cost advantage is seen over a period of time in an outsourcing venture which involves a committed relationship and understanding between both parties involved. A recent article on IBM and outsourcing illustrates this.

"Outsourcing services companies frequently have to make substantial investments in IT equipment, facilities and personnel. Yet IBM, HP and others prize these multiyear contracts because they can help bolster higher-margin sales of hardware and software by creating a long-term, interdependent relationship with customers"

So the aspect of saving money does exist, but one has to realize that initial investment may make the promise of cost reduction seem false.

There will be savings and along with these savings there is great value addition. Most who outsource only realize the quality and value addition after the offshore outsourcing relationship begins. This is not usually the primary goal when deciding to outsource, and the creativity and talent in India comes as a surprise to many.

"Certainly cost reduction, but it's not as simple as that! Cost reduction was only part of the reason that companies were considering offshore outsourcing, there were benefits to be had in time-to-market and quality, leading to an adage that companies initially chose India to save costs but stayed for the speed and quality!" (National Outsourcing Association (NOA), 1st Annual Offshore Outsourcing Conference - 23rd July 2003)

Offshore Outsourcing to India is about quality and value addition at a reduced cost.

The shift in motivation is already apparent. The fact that so many companies continue to outsource is proof of this. Along with the sheer volume of work that is pouring into the country, comes recognition of the talent and expertise possessed by Indian Service Providers.

In an article featured in COMPUTERWORLD on India's prowess in the outsourcing domain, several analysts and outsourcing parties believed that cost was no longer the only reason why outsourcing to India is an attractive option. Companies in countries such as Russia and China have begun offering better rates than Indian companies.

"The difference lies in the scalability of major Indian vendors, their strong focus on quality and their experience delivering a wide range of services", says John Blanco, senior vice president at Cablevision Systems Corp. in Bethpage, N.Y.

The article continues to explain how major Indian software vendors have developed more of a global services delivery capability than their counterparts in other countries. India's workforce also offers the largest pool of technical skills in the world, and the country's universities add 180,000 engineering graduates to its ranks annually.

"The goal is to eventually use Indian vendors as strategic IT partners, both to augment internal IT development capabilities and to help Cablevision plan, design and implement new projects. We're not looking for just the lowest dollar [cost]. We are looking for vendors that will help us mature technically and from a process standpoint as well", says Blanco. ("India Inc., Still Going Strong", by Jaikumar Vijayan, September 15, 2003,COMPUTERWORLD )

Indian companies also realize that cost cannot sustain the country's current dominant position in the offshore outsourcing industry. Nandan Nilekani, CEO Infosys, points out that the way business is conducted is changing. The perfect formula two years ago is no longer the way to do business today. Now the mindset is changing from a company that simply provides services to one that provides solutions.

"Our selling pitch so far was, 'We have a 100 Java engineers, and we can deliver for you from offshore, now tell us what you want us to do.' Today that is being replaced with 'we can give you a technical solution which can cut your inventory expenses by $100 million' ", says Nilekani.

Offshore Outsourcing to India - A shift in motivation

Already many companies are outsourcing with quality rather than cost in mind. Google's recent announcement about setting up an R&D center in Bangalore reflects this new mindset. In an article featured in the E- Commerce Times, the author comments on Google's hiring practices as legendary, with the company "...reportedly selecting only graduates of the nation's top schools to be considered for employment". The company's move is motivated by the vast engineering talent pool in India and is not a cost cutting move. ("Google Eyes India R&D Facility for 2004", by Keith Regan, E Commerce Times, December 12, 2003)

India emerging as a global brand in terms of superior quality is not only being seen in BPO but also in manufacturing which has so far been considered China's forte.

Kiran Karnik, president of the National Association of Software and Services Companies (NASSCOM) who has been chosen by Forbes magazine as face of the year, commented on this shift from cost to quality. ''Offshore outsourcing was triggered by the intention to cut costs, but now it's not just driven by cost factors,'' Karnik told the magazine, adding that ''We are helping (US companies) tap into talent that is scarce in the United States.''

Offshore outsourcing involves a great deal of thought. One should not be spurred simply by expectations of rapid cost reduction. The new mantra of offshore outsourcing to India is quality solutions. When processes are offshored to India, companies not only get the advantage of low cost but also experience improvement in productivity and quality. These are the reasons that should motivate offshore outsourcing to India.