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:
Project level: Discrete aspects of a project are outsourced
Program level: Different projects in a program are outsourced
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.