Outsourcing

When businesses need expertise or skills that they don't have within their organization, they often turn to outsourcing to solve their problems. Outsourcing means just what it says -- going "out" to find the "source" of what you need. These days many businesses outsource for what they need to serve their customers, both internal and external.

An external customer is the entity that ultimately purchases a company's product or services, while an internal customer is the company's own employees or shareholders. Business can obtain both products, such as machine parts, and services, such as payroll, through outsourcing. It is also often cheaper in terms of salaries and benefits and reduces risks and costs.

Outsourcing probably can trace its roots to large manufacturing companies, which hired outside companies to produce specialized components that they needed for their products. Automakers, for instance, hired companies to make components for air conditioning units, sound systems and sunroofs. In some cases, they moved entire factories to foreign countries.

The big shift in recent years, however, is service outsourcing, which refers to companies hiring outside businesses to provide specialized work and expertise. Outsourcing offers many advantages. For instance, outsourcing allows companies to seek out and hire the best experts for specialized work. Using outsourcing also helps companies keep more cash on hand, freeing resources for other purposes, such as capital improvements.