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Why and What Do Companies Outsource?

Why and What Do Companies Outsource?

If outsourcing is a great sourcing strategy, why do companies backsource? To understand the benefits of outsourcing, it is equally important to understand why some companies scale down their outsourcing activities and which functions they choose to bring back in-house (backsourcing). This white paper explores the reasons behind outsourcing, offshoring and backsourcing practices.

Why and What Do Companies Outsource?

WHY: There are many reasons why a company chooses to enter an outsourcing relationship. In most cases, it is because it increases flexibility and business efficiency. According to a study from the Fuqua School of Business, maintaining offshore activity has improved flexibility from 48% in 2009 to 66% in 2011. Another common reason for outsourcing is shortage of talent. Some of the main outsourcing and offshoring activities that remain abroad are IT infrastructure, contact centers, application development and maintenance, and innovation processes. According to the Hackett Group, 2.3 million jobs in finance, IT, procurement, and HR will be offshored by 2016 (one third of all jobs in these areas). Arie Lewin, professor at Fuqua Business School, finds that the main reasons for Offshore Outsourcing are cost reduction, a new strategy for company growth, pressure from competition, and easier access to qualified personnel.

WHAT: According to Ernst & Young, companies will first outsource their ancillary functions, followed by their non-core activities, and only then will companies consider outsourcing some of their core functions. According to their 2008 review of European Outsourcing practices, the following were the functions most commonly outsourced by over
500 business leaders and their companies surveyed in the EU. On the whole, the survey found that outsourcing is more advantageous, as 94% of outsourcers saw at least one advantage compared to the 74% who saw at least one drawback.

Why and What Do Companies Backsource?

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