Outsourcing Pros and Cons
February 4, 2017
Whenever an employer or manager hears of outsourcing he gives it some consideration. This is because it is a wish for every head to want to make more profit from his business. Outsourcing would be simply explained as the exercise where you transact with someone or a certain company to do a specific work for you without having to do the task yourself.
Most companies are unsure whether they should hire other companies to do the work for them without feeling insecure about things not being done the right way. This does not mean that outsourcing is a bed of roses, there are risks in the practice and therefore businesses should be careful and make wise considerations before getting into the exercise.
Companies that successfully create and sustain value year after year are rare. Many try to, but a recent study of 2,000 companies over 10 years by our consulting firm, Bain & Co., found that only one in 10 achieved sustained, profitable growth. One activity that sets such winners apart: They often use capability sourcing in more innovative ways than their competitors.
Outsourcing and offshoring began as cost-cutting measures, but companies that create real sustained value routinely use them for far more strategic ends–to gain capabilities that they don’t have in-house, or to strengthen capabilities they do have. We have found that 85% of those winners use capability-sourcing broadly and strategically for everything from developing world-class talent to bringing new products to market faster and enabling business model innovation. In other words, they’ve moved way beyond mere cost-cutting.
Although outsourcing has disadvantages, it also has its advantages which overshadow the disadvantages because the company benefits more. The heads should therefore decide whether the undertaking will bring profit to the company or not. The company should also be aware of costs incurred, legal issues and other activities involved in outsourcing so as to get the best out of the exercise.
The effects of outsourcing are subjective to the industry and the purpose for which the same was undertaken. However across industries outsourcing is primarily undertaken to enable companies to generate better revenue recognition and to provide them an added competitive differentiator. While done with the best of intentions, outsourcing has a telling effect on quality of products and services delivered as a consequence of this, either enhancing or lowering quality.
While there could either be an increase or decrease in the turnaround time while outsourcing, it could also result in improved or decried customer service. Outsourcing, primarily undertaken to provide companies the competitive edge, can also result in easier management and better productivity based on how effectively the process in managed.
Outsourcing is often undertaken to provide enterprises a competitive advantage by delegating business process to external agencies and realizing the benefits of low labor, better quality and improved innovation. While this provides a good picture of the fair side of the coin, most managers however need to grope with the possible shortcoming of the process and the corresponding impact on the company’s core processes. To best analyze the opportunities presented it is essential to reflect upon the advantages vis-à-vis the disadvantages of outsourcing.
With all the known pros and cons of outsourcing, one should consider and decide whether it’s a good choice to outsource or not. Different businesses have different needs and thus what works for not necessarily will work for the next. Therefore, it should be understood outsourcing works perfectly on some businesses but not on others.
When businesses consider cutting costs in almost any area, often the first thing that comes to mind is outsourcing, particularly to overseas employees or consultants. It is understandable – especially in this economy – that companies want to reduce costs as much as possible and use fewer employees, but the decision to outsource should not be made lightly. Weighing the pros and cons, as well as considering factors other than cost savings, will help you determine whether outsourcing is the right option for your business.
A recent study from Info-Tech Research Group found that most companies outsource to gain access to specialized skills, which result in faster product delivery. Howard Kiewe, senior research analyst at Info-Tech Research Group, said another good reason to outsource is if a business needs to act quickly to take advantage of a market opportunity but doesn’t have the internal talent to respond. Other advantages of outsourcing include improved business processes and workflow, flexible staff allocation and the ability of internal staff to focus on other important business areas.