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Why Companies Outsource

Business Process Outsourcing has grown dramatically as companies continuously strive to lower their cost structure without interrupting core business capabilities. Vital functions, such as payroll, legal work, benefits administration and accounting were among the first to be outsourced. In the medical sector, many companies now outsource clinical trial and their manufacturing operations. Why is this outsourcing trend continuing?

Conserving capital is usually at the top of the list of reasons why companies outsource. Hiring, equipment, training, infrastructure and management costs can typically be reduced by outsourcing companies, as they spread fixed costs over higher volumes and also get economies of scale. However, if the outsourcing function is to be sustainable, it needs to either help the company grow or provide higher quality results over the long term.

Developing internal capabilities in a timely fashion is another reason why companies outsource. Developing a best-in-class approach to any function requires lots of expertise, experience, and knowledge. If a company does not have the time to develop them internally, outsourcing is a viable alternative.

Today, a company needs to be able to adapt quickly and have a high degree of flexibility to meet changing market conditions, customer buying trends or technology disruption. Outsourcing provides that flexibility since there are no facility, equipment or human capital issues that can cause a company to lose its agility in the market.

Outsourcing can increase a company’s revenue growth by freeing internal resources to work on core responsibilities and also attaining maximum impact from the best-in-class expertise of the outsourced team.

As with any other critical business decision, risks need to be mitigated by careful planning, management and measurement of the outsourcing function to be successful.

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