Like with any big decision, one always needs to weigh the benefits against the disadvantages. If outsourcing has presented itself as a possible solution for your organisation, we want to help you gain insight into both the pros and cons of outsourcing to help you decide if an outsourcing model is right for you.
What is outsourcing?
For the purpose of this blog post, when we talk about outsourcing we refer to hiring an outside, independent firm to perform a business function that internal employees might otherwise perform. It’s a common practice for organisations outsource jobs to specialised service companies, which frequently operate abroad. Outsourcing can be undertaken to varying degrees, ranging from total outsourcing to selective outsourcing. Total outsourcing may involve dismantling entire departments or divisions and transferring the employees, facilities, equipment, and complete responsibility for a product or function to an outside vendor. In contrast, selective outsourcing may target a single, time-consuming task within a department, such as preparing the payroll or manufacturing a minor component that can be handled more efficiently by an outside specialist.
Common operational functions that get outsourced are:
- Human Resources
- Information Technology
- Web Design and Maintenance
- Accounting and Payroll Processing
- Customer Call Centers
- Marketing Research
The Pros of Outsourcing
The general perception is that by using contractors you can save on operational or recruitment costs. Many information technology and financial organisations have reaped the cost benefits of outsourcing business processes to lower-paid foreign labour. Outsourcing can help you save on time, effort, manpower, operating costs and training costs, giving you overall cost advantage.
Rather than try to be all things to all people, outsourcing particular sections of your business means you have access to staff who specialise in that area. As they are specialists, they are also likely to meet milestones far quicker. It also means your in-house staff can focus on the organisation’s core strengths. Outsourcing gives you access to professional, expert and high-quality services.
Focus on Core Business
Outsourcing can free the entrepreneur from tedious and time-consuming tasks, such as payroll, so that he or she can concentrate on their expertise and core business. ‘What an outsourcing partner really sells is focus’, says Adam Katz-Stone in Baltimore Business Journal (2000). In accounting for instance, that is something that typically is seen as necessary but not essential, not the core of the business. So you bring in an outsourcing partner and then you don’t have to think about that any more. You can focus your energies on sales, marketing, all the other things that matter more.
You can have employees working on site 24 hours a day. However, it is harder to attract talented employees to work less desirable shifts. This is no longer a problem with outsourcing. Your company can provide service 24 hours a day, with workers around the globe operating in the best shifts available.
Expanded Talent Pool
Reducing costs isn’t the only reason why outsourcing is so popular. Global business allows individuals to come together and work towards a common goal, and outsourcing lets companies tap into a large pool of talented workers from all over the world.
The Cons of outsourcing
Lack of control over execution
When you begin to outsource your business processes, you might find it difficult to manage the offshore provider when compared to managing processes within your organisation. You are also relying on the quality management of a process by an outsider.
Dependence on the supplier
If you resume carrying out the outsourced activity yourself, it can take years to reach the level of performance you used to enjoy. But if the supplier’s service deteriorates, or if their price rises, you may want to take back the activity. There is also a risk of exposing confidential data, when an organisation outsources HR, Payroll and Recruitment services, it involves a risk if exposing confidential company information to a third-party
Employees Feel Threatened
No one likes to think his or her job may be in jeopardy. Once your employees see that jobs are being outsourced, they may think their jobs are next. This can cause some employees to leave your company in search of one that isn’t outsourcing tasks. It can also cause general uneasiness, which can lead to lower morale and less productivity.
Generally the advantages of outsourcing your workforce – a reduction in costs and a streamlining of business processes – outweigh the disadvantages. While challenges can arise, most of these can be handled as long as there are proper contracts in place; there is open and inclusive communication within your organisation and your people, and also with your vendor; and lastly, that client organisations are clear with their expectations.