The dimensions and the related perceived benefits of outsourcing have grown dramatically. A survey of over 1,200 companies by the Outsourcing Institute a professional association that provides information and products on outsourcing—reveals why managers like both long-term and short-term outsourcing contracts.

Short-Term Benefits:

1. Lower operating costs. Access to the outside providers lower cost structure is one of the most compelling short-term benefits of outsourcing. In a recent Outsourcing Institute survey, companies reported that on average they saw a 9% reduction in costs through outsourcing.
2. More capital funds. Outsourcing reduces the need to invest capital in noncore business functions, thereby making capital funds more available for core areas. Outsourcing also can improve corporate financial measurements by eliminating the need to show return on equity from capital investments in noncore areas.
3. A cash infusion. Outsourcing can involve the transfer of assets from the client to the provider. Equipment, facilities, vehicles and licenses used in current operations all have a value and are, in effect, sold to the provider as of the transaction, resulting in a cash payment to the client.
4. Access to new resources. Companies may outsource because they do not have access to the required resources within. For example, if an organization would like to expand its operations, especially into a new geographic area, outsourcing is a viable and important alternative to building the needed capability from the ground up.
5. Better overall IT management. Outsourcing is certainly one option for managing an out-of-control IT function. Outsourcing does not, however, mean abdication of management responsibility, nor does it work well as a kneejerk reaction by companies in trouble.

Long-Term Benefits:

1. Improved business focus. Outsourcing lets the company target broader business issues while leaving operational details to an outside expert. For many companies, the single most compelling reason for outsourcing is to relieve management of the how issues that siphon off huge amounts of managements resources and attention.
2. Access to world-class capabilities. By the very nature of their specialization, outsourcing providers bring extensive worldwide, world-class resources to meeting the needs of their customers.
3. Accelerated reengineering benefits. Outsourcing is often a byproduct of another powerful management tool – business process reengineering. It allows an organization to realize immediately the anticipated benefits of reengineering by having an outside organization; one that is already reengineered to world-class standards take over the process.
4. Shared risks. There are tremendous risks associated with the investments an organization makes. When companies outsource, they become more flexible, more dynamic and better able to adapt to changing opportunities.
5. Free resources for other purposes. Every organization has limits on the resources available to it. Outsourcing permits an organization to redirect its resources from noncore activities to activities that have a greater return in serving the customer.