Advantages of Outsourcing
Outsourcing is a term used when companies contract out its non-revenue processes to outside specialists or acquires a product or service rather than producing itself. The list of services that are being outsourced by organizations these days are is never ending however IT and Human Resource exceed others in this regard. More and more firms have started to come up as specialist firms as outsourcing has emerged into a separate industry itself.
Currently outsourcing is being done in many forms. Business professionals are hired by organizations to carry out specific processes such as benefits management or take care of whole of the operations such as business process outsourcing. There can be a number of reasons behind outsourcing services.
Companies have started to look for specialists who can provide a bit more that just technology and simple business processes. A company might want to reduce and improve operating costs or it may be interested in gaining access to world class capabilities (Meyers, 02). One reason may be that the company does not have enough internal resources to carry out the service or produce the product. The company might also want that its risk factor reduces as outsourcing to a specialist reduces the risk associated with the service or product.
Advantages of outsourcing
To a modern day business man, outsourcing is like a god sent gift. Outsourcing will allow XYZ organization the freedom to abandon non-core but at the same time important segments of its management on people specialized in those very individual facets. Thus, this will leave the management to freely concentrate on those areas of the business that really generate profits.
Beniefer in his article “advantages of outsourcing” says that the key advantage of outsourcing is the cost reduction factor. Human resource or IT services for example are not cheap in States, Europe or in countries such as India even. These services can be hired at low rates with the help of outsourcing by XYZ firm. This gives the company and opportunity to create an inexpensive but extremely prolific mass work force.
According to a research by Accenture, business people in fields such as retail, manufacturing, health and travel say that outsourcing provides them more control over the processes of the business (Dookrill, 1). The main areas highlighted by these people were planning, execution of ideas, cost variability etc. Some also said that outsourcing provides an effective way to carry out strategies reliably and with control. As XYZ is a multinational, all the advantages mentioned above also apply to it as well.
Outsourcing also provides an access to specialized services. This is also a key reason why XYZ would outsource. Some businesses do not have the required competency in a given area of the business. Such firms, by outsourcing, get hold of specialized people to take care of processes in that area. Performing all services in-house might not let XYZ provide skilled services or a specialized product to its consumers. Outsourcing will provide XYZ this advantage.
Disadvantages of outsourcing
The main disadvantage of outsourcing is that it generates a lot of unemployment especially when processes are outsourced to offshore companies. It also results in a waste of talent as it may hamper a hard working employee’s growth by depriving him of the expertise he would have gained by handling that specific process on his own which was outsourced. Secondly outsourcing results in lack of managerial control. XYZ might not have the same control and authority over the outsourcing service provider as it will over its own employees.
Outsourcing is also at times considered a threat for a company with regard to confidentiality and security of matters. For example if XYZ company is outsourcing its pay roll division, the outsourcing company has access to all information regarding to salaries and payrolls. Thus when outsourcing a business process, companies should choose wisely whether to outsource that particular division or not. Some people also argue that outsourcing also results in loss of flexibility in terms of adapting to changing business environments which in term hinders the firm’s internal and external focus on the customer.
Advantage and disadvantage to whom
The advantages and disadvantages mentioned above apply to both the firm and to the firm providing the outsourcing services. Although, both the bigger advantage and the disadvantage, will only apply to the firm acquiring the services. If XYZ outsources, it might feel a lack of control in its management but would definitely feel a good grip on the sector that was outsourced as it is being handled by a specialized firm.
Some employees might feel irritated and also less motivated as outsourcing hinders their growth in a particular area. Some might quit the job even as they do not get to work in their desired division and this might result in loss of potential talent. Sometimes also firms do not realize that instead of reducing costs they are adding to costs. For example when outsourcing a process, a lot of contract agreements take place. They increase the cost of time which is also a loss (Workman, 1).
Form the point of view of a firm providing the outsourcing, there are less chances of any losses or disadvantages. As they are specialized in what they do, they can leave one business and get hired by another business. Though, in order to build reputation such firms must perform services in the required manner. This will able them to learn, grow and make name in the business community as a trustworthy and reliable services provider.
Meyers, J. Why companies outsource: opportunities and challenges. 2002. Page 2. From webpage http://www.omron247.com/marcom/pdfcatal.nsf/6B03B04F72D268E186256B7D007AC07C/$FILE/OutsourcingArticle.pdf
Beniefer, I. Advantages of outsourcing. Ezine Articles. From webpage http://ezinearticles.com/?Advantages-of-Outsourcing&id=110032
Dookrill, K. Advantages of outsourcing. CA magazine. From webpage http://www.camagazine.com/
Workman, D. Global outsourcing risks and rewards. 2008. Suite Articles. From webpage http://international-outsourcing.suite101.com/