In today's competitive environment, focus is to concentrate on core specialization and competency areas while outsource rest of the activities. Most organizations have come to realize that by outsourcing non core activities, not only costs are minimized and efficiencies improved but the total business improves because the focus shifts to the key growth areas of the business activity.

The aim of outsourcing is to gain value for the host organization. When a company is forming a long-term offshore outsourcing relationship with another company, the foundation of the success of this venture is laid down during the negotiation period itself.

Outsourcing proposals are often evaluated and executed with inadequate information about services and costs. The result may be an agreement that does not define the full set of services required, does not result in expected cost savings, and requires retaining a significant number of internal staff to close service gaps and monitor the outsourcer.

Hence, good outsourcing decisions are based on complete understanding of services and costs, the impact of change and the risk associated, etc. It involves examining whether an organization is effective and efficient in providing a function which is strategic to the business.

Some of the commonly discussed best outsourcing practices are:

• Establish clear objectives of outsourcing a particular service;
• An outsourcer must be compatible with the company's culture and business objectives, with the right experience, communications skills, and working style;
• Focus on the long-term result desired to justify such a fundamental switch in business operations;
• Focus on getting a good delivery;
• Make sure that the service provider understands the project specifications, which requires a great deal of coordination and back-and-forth communications;
• Stay on-site inorder to see what is actually happening;
• Organize formal review meetings periodically to maintain successful relationships;
• Pre-determine the incentives and penalties schemes so that the service provider is driven to meet the established customer expectations by adopting the performance based pricing criteria;