reduce and control operating costs

reason # 1

Strategic – long-term benefit

The single most important reason for outsourcing is to reduce and control operating costs.

Access to the outside provider's lower cost structure, which may be the result of greater economy of scale or some other advantage based on specialization, is clearly and simply one of the most compelling tactical reasons for outsourcing.

In addition, companies that try to do everything themselves may incur vastly higher research, development, marketing, production and employment expenses - expenses that have to be passed onto the ultimate customer.

Today's customers are too sophisticated to accept the costs associated with an organization's attempts to maintain singular control over all its resources.

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make capital funds available

reason # 2

 Strategic - long-term benefit

Outsourcing is a way to reduce the need to invest capital funds in non-core business functions.

Instead of acquiring the resources through capital expenditures, they are contracted for an "as used" operational expense basis.

Outsourcing makes capital funds
more available for core areas. It can also improve certain financial measurements of the firm by eliminating the need to show return on equity from capital investments in non-core areas.

There is tremendous competition with most organizations for capital funds. Deciding where to invest the funds is probably one of the most important decisions that an organization's senior management is called upon to make.

For example, when a firm outsources its statement, invoice or debtor letter printing, the equipment and personnel in that area no longer compete for the company's capital.

Often, these types of investments and their constantly escalating demands have been difficult to justify when compared to areas more directly related to producing product or serving the customer.

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free resources for other purposes

reason # 3

 Tactical - near-term issue

Every organization has limits on the resources available to it.

The constant challenge is to ensure that its limited resources are expended in the most valuable areas.

Outsourcing permits an organization to redirect its resources from non-core activities toward activities that have the greater return in serving the customer.

Most often, the resources redirected through outsourcing are people resources. By outsourcing non-core functions, the organization can redirect these people, or at least the staff slots they represent, onto greater value-adding activities. People whose energies are currently focused internally cannot be focused externally - on the customer.

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resources not available internally

reason # 4

Strategic – long-term benefit

Companies outsource because they do not have access to the required resources within the company.

Two general situations can create this resource shortage - downsizing and expansion.

When expanding operations, the additional resources and expertise may not be available for several months - a critical time loss when the company needs to move quickly.  Outsourcing in this situation can provide the quick response and delivery needed to maintain competitive response in your market.

When downsizing, expertise and resources may be lost.  Time is required to shift existing personnel, equipment, and talent - and the loss of productivity and loss of response can be costly.

Quite simply put, rapid changes in your organization is often a strong indicator that outsourcing may be right for a company.

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improve company focus

reason # 5

Tactical - near-term issue

Outsourcing lets the company focus on broader business issues while having operational details assumed by an outside expert.

Outsourcing is an organization-shaping management tool that can lead to a clearer more effective focus on meeting the customers'
needs.

For many companies, the single most compelling reason for outsourcing is that several of the "how" type of
issues are siphoning off huge amounts of management's time and attention.

Too often, the resolution of these issues is stuck in middle management "decision gridlock". This creates financial and opportunity costs that affect the organization's future.

Outsourcing can enable an organization to accelerate its growth and success through expanded investment in the areas that offer it the greatest competitive advantage.

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sharing risks

reason # 8

 Strategic – long-term benefit

There are tremendous risks associated with the investments
an organization makes. Markets, competition, government regulations, financial conditions, and technologies all change extremely quickly. When companies outsource they become more flexible, more dynamic and better able to change themselves to meet the changing opportunities.

Keeping up with these changes, especially where each next
generation requires significant investment of resources and dollars, is very difficult and "bet your company" types of investments are all too common. Outsourcing is a vehicle for sharing these risks across many companies.

Outsourcing providers make investments not on behalf of just one company but on behalf of their many clients. By sharing these investments, the risks born by any single company are significantly reduced.

Outsourcing is, in effect, the management tool for becoming what is popularly called the "modular company", the "virtual corporation", or the "agile competitor".

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cash flow & cash infusion

reason # 9

Strategic - long term benefit

Outsourcing often involves the
transfer of assets from the customer to the provider.

Equipment, facilities, vehicles and licenses used in the current operations all have a value and are, in fact, sold to the vendor.

The vendor then uses these assets to provide services back to the client and, frequently, to other clients. In other instances, the client has use of talents and materials on as as-needed basis, with billing for these services payable 15-30 days after use. This situation is much more desirable than having to incur the financial liability for the anticipated use of the service before the actual need occurs.

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access to world-wide capabilities

reason # 10

Strategic - long term benefit

By the very nature of their
specialization, outsourcing providers can bring extensive world-class capabilities to meeting the need of their customers.

Just as their clients are outsourcing to improve their focus, these vendors have honed their skills at providing the services in which they specialize.

Often these vendor capabilities are the results of extensive investments in technology, methodologies, and people - investments made over a considerable period of time.

In many cases, the vendor's capabilities include specialized industry expertise gained through working with many clients facing similar challenges. This expertise may be translated in skills, processes or technologies uniquely
capable of meeting these needs.

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Partnering with a world-class provider can offer the following advantages:

Access to new technology, tools and techniques that the client organization may not currently possess;

Avoidance of the cost of chasing technology and the training costs associated with each new generation;

Better career opportunities for personnel who transition to new areas of business that are more focused to the core business of the client company;

Enabling the client's staff to concentrate on building new and improved capabilities that meet business requirements rather than managing current operations;

Providing more structured
methodologies, procedures and documentation - as well as larger, more experienced staffs - resulting in fewer operational problems;

Competitive advantage through expanded skills. The provider's primary business is delivering world-class support to clients and partners. These companies have a track record of proven experience
and leadership in the application of their specialty to business processes;

Access to better tools for
estimating the costs of new solutions; • Access to the industry knowledge and expertise gained from working with others.