Outsourcing is contracting your work to a third party company.
I will give you a simple example to understand it better. You want to buy groceries from a Mall. Instead of you going to the mall and buying the groceries you will ask a third person to buy it and give it to you. A third person is actually providing you the service. He is a service provider. You are paying him some amount. You are actually outsourcing your work to a third party. You will see a lot of examples for outsourcing, but I am sure you never thought of it as “Outsourcing”.
Here we are discussing about software outsourcing. It is outsourcing software services. By outsourcing some of the tasks, company can concentrate on its core functions.
You and service provider will make up an agreement upon what service he is going provide and obviously when he should be completing the work the amount you are going to pay.
If you are outsourcing the work outside the nations it’s referred as offshore outsourcing.
There are different categories of outsourcing based what function a service provider is providing and how is it going to achieve it.
BPO (Business process outsourcing): This is outsourcing a non-IT related task, example pay roll, call center, finance department, human resource. IT services includes, Quality Assurance, Software development, testing, application development, Game development SEO services.
The contract of outsource normally includes for few years.
BPO has Back Office and front office outsourcing. Back office process include, payroll, billing, call center, human resource, processing the hospitalization claims to submit to the insurance company would be outsourced to a third party. Front office processes include technical support, customer services and advertising.
LPO (Legal process outsourcing): handle legal processes like patent application, license agreement.
RPO (Research process outsourcing): It handles R&D work.
HRO (Human Resource outsourcing): As the name indicates HR related task, payroll handling, employee trainings, employee benefits, travel management etc.
A company might not have expertise to deal with certain business aspects, in this case the task would be outsourced to a third party which has the required expertise and it is ready to provide the service.
I will give you another example why companies go for outsourcing. A company has an enterprise product and it has developed the product say for example 10 years back and many customers are using this product. No new feature developments for the product and only maintenance work would be handled by the employees. And revenue has come down. In such situation company would decide to go for outsourcing. Employees working on this project are given chance to either work on the same project provided as an employee of the third party or else he can opt for the different product to work for in the same company. Fare for employee and the company.
Outsourcing all work is not good and no-outsourcing at all is also not good. There should be a balance what work should be outsourced and what not.
What are the benefits of Custom Software Development outsourcing? Is it just to save money or something else?
Majorly cost cutting:
Company can concentrate on its core-functions by outsourcing some of the non-core functions
Outsourcing reduces the overhead thereby freeing up valuable resources. Company can make use of these resources in to some critical functions.
Saves employee training costs. If specific expertise was required for the function.
By making sure of “Quality of service” you are actually improving customer satisfaction.
Increases the efficiency as the function is provided by the experts.
Well defined outsourcing and good relationship with partner gets you more profit.