Outsourcing – Contracting another business to carry out some of the business' activities, often to reduce costs
To remember what outsourcing means use the following mnemonic:
Every day their outfit was covered in sauce (outsource). Rather than the management wash all the clothes, they asked a cleaning company to do it cheaper.
Like in the mnemonic above, it’s a lot cheaper to take all the dirty clothes to a specialist such as a laundrette that specialises in washing. Outsourcing the washing would be quicker, cheaper, and result in a better job than you could do. You can concentrate on what you are good at which is earning money running the Mad Hatter’s Tea Party Company, which the laundrette couldn’t do as well.
Other examples include outsourcing to a web development company. Why invest in expensive staff if you can ask a company to produce a fantastic one-off website and continue to run at a minimal cost?
Water, electricity and gas companies have been outsourcing customer service to foreign countries with very cheap labour costs to answer standard questions from customers. Some companies outsource their day-to-day accounting in order to send the correct amount of tax money to the government. Do you have the time to sit the exams or do you want the expense of a full-time accountant?
Rather than deliver their own products to customers, many companies outsource or pay other companies to deliver for them. It’s usually cheaper than paying a full-time wage to make various one-off deliveries, and if that driver is ill what do you do then?
Most large businesses delegate some authority to outsourced specialists.