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Advantages and Disadvantages of Outsourcing
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NOVEMBER 8, 2017 BY PATRICIA — 23 COMMENTS
Subscribe For Free E-Book! Outsourcing is a business strategy that moves some of an organization’s functions, processes, activities and decision responsibility from within an organization to outside providers. This is done through negotiating contract agreements with a vendor who takes on
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the responsibility for the production Subscribe For FREE!
process, people management, quality,
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customer service and key asset management of the function. The process can greatly reduce fixed overhead costs of an organization.
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Why do organizations outsource? Outsourcing allows organizations to focus on their core business and can create a competitive advantage by reducing operational costs. The beauty of outsourcing is you can outsource an entire function or only a part of it. As an example, you can outsource the network management oversight of an IT system but keep the end-user support in-house.
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This can provide an organization with a good balance of on-site support for employees.
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Organizations use outsourcing as a strategic initiative to improve customer service,
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Outsourcing can be a permanent or temporary arrangement to bridge the gap in
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staffing, to learn better quality techniques or improvement of faulty product design. When looking for outsource opportunities, an organization should look at potential
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areas and each component within that area to determine if part or all of that function
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should be outsourced.
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Different industries outsource different aspects of their businesses, but some common
operational functions that get outsourced are:
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There can be significant cost savings when a business function is outsourced. Employee compensation costs, office space expenses and other costs associated with providing a work space or manufacturing setup are eliminated and free up resources for other purposes. SWOT Analysis Template
Focus on Core Business
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Outsourcing allows organization to focus on their expertise and core business. When organizations go outside their expertise, they get into business functions and processes that they may not be as knowledgeable about and could potentially take
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away from their main focus. An example of this is when a grocery store decides to add a florist to their operation. If
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too much focus is put on that part of the business they lose focus of the core business which is grocery.
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specialized processes.
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An example of this would be contracting out a cleaning service. An outside service would have the resources for hiring, proper training and facility inspections that may not be available if the function were kept in-house.
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The advantage of having a vendor contract is they are bound to certain levels of service and quality.
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An example of this is if your IT function is outsourced and the technician calls in sick, it is the vendor’s responsibility to find someone to replace them and meet your support needs.
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Outsourcing gives an organization exposure to vendor specialized systems.
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Specialization provides more efficiency that allows for a quicker turnaround time and higher levels of quality.
Disadvantages of Outsourcing
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Outsourcing can expose an organization to potential risks and legal exposure. As an example, if a car is recalled for faulty parts and that part was outsourced, the car manufacturer carries the burden of correcting the potentially damaged reputation of the car maker.
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While the vendor would need to make good on the faulty product by contract, the manufacturer still has the black eye from the incident and carries the burden of correcting the negative public perception.
Quality Service Unless a contract specifically identifies a measurable process for quality service reporting, there could be a poor service quality experience. Some contracts are written to intentionally leave service levels out to save on costs.
Language Barriers If a customer call center is outsourced to a country that speaks a different language, there may be levels of dissatisfaction for customers dealing with the language barriers of someone with a strong accent.
Employee/Public Opinion There can be negative perceptions with outsourcing and the sympathy of lost jobs. This needs to be managed with sensitivity and grace.
Organizational Knowledge An outsourced employee may not have the same understanding and passion for an organization as a regular employee. There is the potential that an outsourced employee will come in contact with customers and not be as knowledgeable of the organization, resulting in a negative customer experience.
Labor Issues Organized labor in the United States has very strong feelings about outsourcing to other countries that have a less standard of living and worse working conditions. This viewpoint can affect how the workforce responds to outsourcing and can affect their daily productivity.
Legal Compliance and Security It is important that issues regarding legal compliance and security be addressed in formal documentation. Processes that are outsourced need to be managed to ensure there is diligence with legal compliance and system security. An example of this is outsourcing the IT function and having an outsourced employees use their access to confidential customer data for their own gain.
Employee Layoffs Outsourcing commonly results in the need to reduce staffing levels. Unless it can be planned through attrition, layoffs are inevitable. This is difficult at best and if not managed appropriately, can have a negative impact on remaining employees. Finally, when researching vendors for outsourcing be sure to think through your specific needs and get at least three Requests for Proposals (RFP) to ensure you are getting the best value for your dollar. Does your organization outsource any of its functions?
What type of service are you interested in? Note: If you are seeking integrated HR services through a professional employer organization (PEO), or are looking for payroll services only, please choose one of those options to find the best fit for your needs.
HR outsourcing Professional Employer Organization (PEO) Payroll services only
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Comments Ortiz2 says January 9, 2012 at 3:24 am Amazing article! I am also into outsourcing. For me, it’s not really much of a big deal on wherever country you outsource to, the important thing is it has good quality and it get to be cost effective. Outsourcing is for everyone who needs to save time or money, may it be for business or something personal. Yes, I have to agree that not all firms or person you hire, give you great or fast results, only lesser cost. But I think it is possible to have both, high quality and cost effectiveness, if you just do some research first about the possible candidate. Because there’s no way to be sure on whether the person you’ve employed is going to do the best job. That’s why we need to have the best technique. Because all we are left to do is trust that person and hope for the best result. Reply
Michelle says February 8, 2012 at 10:08 am well said Reply
stephen nyarko. (ghana) says June 3, 2012 at 1:21 pm i want to work for you.contact +233243573517 Reply
Patricia says June 5, 2012 at 3:21 pm Hi Stephen! I’m still launching my business but perhaps down the road if I’m looking to hire employees we can discuss. Thanks for the comment! Patricia Reply
MPOSSO says April 21, 2017 at 10:24 pm Have you done with your business? am also ready to work with you Reply
Isaac Dendwa says June 7, 2012 at 11:02 am thanks for this it was really helpful Reply
Patricia says June 7, 2012 at 11:09 am Thanks for the comment! Patricia Reply
Naomi says July 24, 2012 at 6:48 am Willing to work. Reply
Ron Schutt Sr. says June 5, 2014 at 11:11 am My employees need a job. As do so many others in our city and in our country. How far do you bring outsourcing? I say, whenever possible you should produce in-house. Sending work out weakens you. As sending work out of your city, or country that can be done here- weakens your city or your country. I choose to remain strong. I choose to support my employees, my city, my state, my country and my world. Money is only a small part of being in business. If you love what you do, it will love you back. You can succeed without becoming anti-corporate and anti-team. The best person to do your job is you until you forget how to do that!! Reply
Alisa Addison says December 15, 2014 at 12:14 am “Thanks Patricia for sharing the post. I believe that there are more advantages on outsourcing than disadvantages. Outsourcing, allows you focus more on expanding your business while saving time and money at the same time. It helps to promote the business and increase profits. This article is very essential to read and understand for those who are planning to outsource.” Reply
Patricia Lotich says January 16, 2015 at 9:57 am Thanks for the comment! Patricia Reply
zaraa says March 4, 2015 at 6:34 am Thanks for this article Patricia. You have clearly pointed out few advantages and disadvantages of Outsourcing. Right now each Business owners have the confusion whether to go for it or not. Few even choose to Insource rather than risking it. I have seen many companies facing troubles and lack of quality as a result of outsourcing a work. Even more other options can be chosen according to the type of work you need to get it done. Reply
tri seo loi says November 9, 2015 at 7:59 am Great article. Reply
Beaconit says January 6, 2016 at 10:02 am Good Information for us And we are in outsourcing. It’s our training Center Thank you very much. Reply
rkr says January 14, 2016 at 12:09 am This is great information for my project decision. Thank you so much ! Reply
Gabriel Sodje says February 9, 2016 at 1:50 pm It is highly advisable to accomplish project within ones company, using the human resources available to us in the organization, ensure company’s reputation, to ensure employees confidence in the company, to avoid unnecessary expenses, to ensure quality materials and services delivery and to enhance rapid growth and development of the agency. Reply
Erik Moser says March 30, 2016 at 12:39 pm – Thanks for this helpful article, Patricia! Your post helps to develop some of the legal/liability issues associated with outsourcing that is helping me to think through my own needs more clearly. I am considering the use of a call center to handle my inbound calls and have been weighing out the ‘pros’ and ‘cons’ typically discussed in articles and blogs written about these issues. A website called outsourceconsultants.com has been recommended to me as a company that provides brokerage service between businesses and call centers connecting them based on the expressed needs of the business and the competencies of the call center. Apparently, the service is paid for by the call center so that my business has no cost for the service. Do you know anything about this? Any information is helpful – thanks again! Reply
Patricia says April 3, 2016 at 10:45 am Hi Erik. I don’t really know anything about the company in question however most brokerage companies can do a comparison for you to help you find the best solution for your business. Another option is to get involved in your local chamber of commerce and talk to other small business owners to get recommendations on call centers. I hope this helps and good luck! Patricia Reply
Yiwen says December 5, 2016 at 9:27 pm The article is really helpful . I am not a employer but a student in college who just take the class about the global market. I feel very boring and difficult to understand some terms. While reading your article, I feel much better. Reply
Rubeiti Tiinaa Tebwaara says October 7, 2017 at 8:18 pm It is a understandable article most of the article that I try to use in my first assignment most of the words that they used are hard to understand therefore, hope to read more of your article in the future. This article has given me information for my assignment Reply
Magesh.R says November 15, 2017 at 6:30 am In business processes like this some step are important Reply
Trackbacks
Outsourcing downfalls | Hintrel says: April 2, 2012 at 7:13 am […] Advantages and Disadvantages of OutsourcingJan 9, 2012 … Outsourcing is a business strategy that moves some of an organization’s functions, processes, activities and decision responsibility from within … […] Reply
5 Affordable Solutions To Offset Limited Resources says: March 13, 2014 at 8:42 am […] many business processes. Some of these processes can and should be kept in house but often, outsourcing a service can be more affordable, efficient and […] Reply
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