Compared to the usual practice until the 80s, consisting of companies performing all their activities internally without resorting to the contracting of external suppliers, the theory of core competencies emerges from that moment.
This postulated the desirability of companies only focusing on the activities that constituted the true core of their business – core activities – while having to divest those peripheral or supplementary activities to their business as a way to obtain rapid increases in profits.
Advantages of outsourcing
The advantages of outsourcing are multiple and can be classified into the following five categories:
- Cost reduction:
The outsourcing service provider usually enjoys cost advantages. Scale economics: By providing the same service to a larger user base, companies providing outsourcing services benefit from economies of scale that lead to minimizing their costs and being able to offer their services at a more competitive price than their internal development by the client. Economies of scale can manifest themselves in different ways, such as the reuse of models developed for one client in relation to another. For example, the vendor that sells the same software system to several customers has a larger user base among which to distribute the fixed costs of system development. Another manifestation of the advantages of acquiring a larger size is the best distribution of work and the most efficient use of resources: Thus,
- Transformation of the cost structure:
While for the service contracted to the provider, variable costs will normally be paid depending on the use made of it, if the company wanted to provide these services internally, it should have certain fixed structures that would imply a fixed cost regardless of the use That the service be done.
The external provider will have modern and technologically advanced infrastructures at all times, something that sometimes the company may not be able to afford when developing that task itself.
In many cases, the reason that leads companies to outsource is the flexibility they achieve in this way. Thus they can increase or reduce productive capacity in a simple way without having to go through long processes of selection/regulation of employment, which improves adaptability to changes in the environment.
The possibility of acquiring systems already developed by the service provider and that you just have to adapt, customize the end customer, as well as the fact that the provider is a specialist in your field, brings great speed compared to the time it would take the customer in developing it internally from the beginning. This allows reducing the time it takes for products to reach the market, allowing companies to obtain first-time advantages when they are the first in the market or to hunt down the first entrant when the competitor is the first to launch an offer to the market.
Outsourcing service providers are usually specialized in a very small number of activities that they know how to do very well. This allows them to enjoy economies of specialization and save costs with which they can offer their services at a lower cost than it would be for the company to develop that capacity internally.
But at the same time, on many occasions, their specialization allows them to offer a service of superior quality to the one previously provided by the client. The customer is at the same time, increasing their ability to develop new products and services and gain access to new technologies and skills.