This paper describes what outsourcing is, and why it has been an increasing attractive business option in these modern times. Also it talks about why major companies outsource their IT services.

Discussions are also made on the risks involved in outsourcing.

Ø Outsourcing is the contracting of a company’s non-core, non-revenue-producing activities to specialists.

Simply, it is the transfer of operational responsibility of either business processes or infrastructure management to an external service provider.

Although outsourcing is not a new concept, it’s increasing acceptance among corporations as a mainstream alternative to in-house operations, as well as supplementation of IT services, has propelled significant growth over the several years.

The two main types of outsourcing are Information technology (IT) Outsourcing and Business Process Outsourcing (BPO). BPO includes outsourcing related to accounting, Human Resources (HR), benefits, payroll, and finance functions and activities.

Outsourcing is an increasing attractive business option because overall, companies tend to outsource to

Loss of strategic flexibility is another risk in outsourcing; By outsourcing, companies may reduce cost, but may loss the ability to react to new strategic challenges and changes in their operating environment in future. This loss of flexibility may manifest itself in the ability to introduce innovative new products or the inability to upgrade existing products. It is risky for the client to reveal its strategy business plan to the vendor who may simultaneously be providing services to the client’s competitors. This will limit flexibility and could cause serious problems if the vendor decided to become a direct competitor.

As companies look for ways to improve profitability and streamline the efficiency of their operations, the practice of outsourcing parts of the operations has become increasingly attractive business option over recent years. Outsourcing can yield substantial cost saving, help management better focus its energies and provide companies with improved service as well as access to the latest technology. Because in-house service providers do not face the same types of market pressures as outsourcer, it is often difficult for them to provide the same level of services an outsourcer on the cost competitive basis. That’s also the reason why outsourcing is an attractive business option.

One other reason why companies outsource their IT services is Technical capabilities. For an example Nike’s footwear business is £4 billion. It requires an achievement in global communication to keep to keep this worldwide web of Nike designers, product developer, production experts, marketing teams, sales staff, distributors and dealers in step with product developments and marketing plans. Just how do Nike’s employees and partners around the world stay plugged into production? Without flying them into headquarters or shipping expensive samples across the globe?

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