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.