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Levels of Outsourcing

Outsourcing has moved from tactical to strategic level and companies have started pursuing outsourcing as an important business strategy. Companies generally use the following three levels of outsourcing:

  1. Project level: Discrete aspects of a project are outsourced

  2. Program level: Different projects in a program are outsourced

  3. Division level: The entire operation of a division is outsourced

There are various factors that govern the decision to outsource at a particular level by a customer. These factors include:

  • Critical nature of the work: If the work is critical to a company’s core business, the company will prefer to outsource as little as possible and in discrete parts.

  • Faith of the customer in a vendor: The higher the faith a customer has in its vendor, the more it will outsource. In some cases, it will outsource even the operations of an entire division.

  • Cost advantage: Cost efficiency is an important deciding criterion, with larger work being outsourced if cost savings are large.

  • Proven track record of the vendor: A proven track record of the supplier inculcates a feeling of trust and the customer prefers to outsource larger work to the vendor.