Efficiency & Reliability
When you build a company and have customers using your products, it is important to have systems and processes in place to mitigate downtime and other vulnerabilities. It will also likely be apart of your strategy to make your operations as lean and efficient as possible through outsourcing and similar cost-cutting measures.
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The advent of modern electronic communications has allowed companies to efficiently source and manage labor all around the globe. This is one of the megatrends, if not the megatrend, of the current economic period we are living in. But just because you can use labor halfway around the world doesn’t mean you should. This post is about the pros and cons of offshoring from my perspective.
Outsourcing is when a company hires another company to perform certain functions. Wikipedia defines it as "contracting to third parties." The term has become synonomous with the transfer of labor/work overseas, but outsourcing is not geographically defined. You can outsource work to the company across the hall. The two primary reasons one company will outsource work to another company are cost and skill set. The third party outsourcing company can provide the required work at either lower cost or higher quality or possibly both. Sometimes time is also a factor. It is often the case than an outsourcing company can get the job done faster.
Every system built by a single institution has points of failure that can bring the entire system down. Even in organizations that have tried hard for internal redundancy – for example, Google and Amazon have extremely distributed infrastructures – there will always be system-wide shared components, architectures, or assumptions that are flawed. The only way to guarantee there aren’t is to set up completely separate, competing organizations – in other words, new institutions.