Outsourcing is defined as the practice wherein a firm entrusts another firm to carry out one of its operational functions. Firms do this in order to focus better on other areas of business that need attention. This practice has gained a lot of prominence over the past couple of decades as an increasing number of firms have contracted with other firms to handle their secondary level activities. If done right, outsourcing can result in a massive boost in productivity, reduce workload and even establish a good relationship with the other company which could prove useful in the future.

However, firms need to perform their due diligence prior to zeroing in on a firm with whom they want to work. Outsourcing a particular arm of the business is a risk too because the firms that outsource essentially give up control of that particular arm of the business and there is very little they can do in case something starts to falter.

One of the major decisions that firms need to take is; which arm of their business do they want to outsource. Making this decision is the pre-requisite to all subsequent decisions because firms need to be sure that the business that they are outsourcing is not too central to their main objectives.

One decision that requires a lot of brainstorming is; which firm do they outsource their business to. Gathering relevant information about the company is imperative to develop the confidence that a venture with that firm will not be detrimental to the firm in any way. Factors like industry reputation, previous collaborations, number of employees, how long they’ve been in business, play a major role when it comes to building confidence.

Another factor that is important but seldom overlooked is the timing of outsourcing. Some organizations cause irreparable damage to their business by outsourcing too early, while others risk falling behind to more innovative competitors by ignoring the opportunities available; and some companies outsource the wrong mix of activities.

The fundamental idea behind outsourcing any business process is to increase profits and concentrate efforts to the core business activities. However if the third party that’s handling the outsourced business does not do a good job, the effects could be on the contrary. Firms may still burn money and the net result may remain zero. Basically, the cost-efficiency takes a hit if the processes are contracted to the wrong third party.

Although outsourcing seems like a viable option from the outside for any firm that is expanding in size and operational bandwidth, it is imperative to keep all these factors in mind before making a final call. One wrong move could send the company backwards and potentially harm their reputation too.