Outsourcing is where a company pays another company to handle a particular project for them. In many cases, the outsourced work could be done by the company itself, but there are often financial benefits in outsourcing the work.
Before deciding to outsource any part of your business to an external service provider, you should first know what the advantages and disadvantages of outsourcing are. It is very important to do your homework first before embarking on outsourcing, for you to be able to weigh things out and of course come-up with a smarter decision. So here, you will get some information that might be necessary for you. Before dealing with the advantages and disadvantages, get first the list of the most commonly processes in business that usually outsourced by eternal service providers.
Advantages Of Outsourcing
Ability to Maintain Focus On Other Activities
For instance, your marketing team has done an awesome job and has gained a lot more consumers to buy your products, your accounting and customer service departments may need help during this time of influx. Outsourcing your accounting may not be a bad idea, this way you can focus on customer satisfaction.
It Saves Time
Rather than using your time and money to learn several new skills, you can simply outsource to someone who is already proficient. Perhaps you have other things in life besides your business that you want to focus on.
Reduction in Expenditure
Outsourcing would definitely bring down your expenditure substantially. You do not need full-time employees whom you have to pay full-time salaries or wages. You would be saving on salaries, bonuses, vacation, and insurance. Reduced expenses, from not having full-time employees, may give you the competitive edge that could mean the difference between success and failure, profit or loss.
Quick Accessibility to Audit Service
The company has the advantages of very quick accessibility to an experienced audit team if it acquires a new business in a foreign location that is inconvenient for its internal staff to reach.
Disadvantages of Outsourcing
It leads to Unemployment
Unions, on the other hand, argue that outsourcing harms a local labor force. Outsourcing results in fewer jobs and unemployment and this can be observed everywhere. This happens because services that can be done in home organizations are shifted to other locations, especially to countries that work for cheaper labor.
It Leads To Loss of Sales
If the outsourced product does not meet the quality, your company will lose sales for the month due to non-availability of the product and also incur a loss. Many of the disadvantages and headaches of outsourcing can be avoided by choosing the right company for outsourcing by studying their background and track record.
Loss Of Control
When you outsource essential parts of your business function, you are giving away control of that part of your business. Although you will have a contract in place, the outsourcing company may not have the same standards or policies that you do with regards to the quality of work. There is always risk associated with outsourcing because you may not receive the quality of work you are expecting.
Loss Of Managerial Control
If a company decides to outsource its activities, then control over management of its product is transferred to the other company’s discretion since they are the ones directly involved in the production and provision of such goods or services. This entails a higher risk for the company that outsources since it has to entrust certain operations to the other company which dilutes its control over the product or service provided.
Threat to Security and Confidentiality
The life-blood of any business is the information that keeps it running. If you have any confidential information that will be transmitted to the outsourcing company, there is a risk that the confidentiality may be compromised. If the outsourced function involves sharing proprietary company data or knowledge (e.g. product drawings, formulas, etc.), this must be taken into account. Evaluate the outsourcing company carefully to make sure your data is protected and the contract has a penalty clause if an incident occurs.
With these Do's and Dont's of outsourcing, it is advisable to determine the importance of the tasks which should be outsourced.
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