Outsourcing the Right Way: Understanding the Pros and Cons

Posted on Nov 09, 2015 by admin

If you google the term outsourcing, you will probably find yourself overwhelmed with thousands of write-ups, commentaries, and blogs on the subject. The truth is, outsourcing has already become a widely used arrangement between companies to companies and its effects are now felt on a global scale. Not only does it affect our worldwide economy, it also initiates a cosmic change to how we work and interact within the market.

Outsourcing is usually undertaken by organizations in pursuit of cutting costs without compromising quality. When some of the business aspects can no longer be handled by an organization, they are allocated to a third-party vendor who are then expected to complete the process and maintain the standards of the mother organization.

outsourcing probThe entire outsourcing course is quite easy to absorb and it apparently provides a competitive advantage for both parties as the client company gets to spend less, save time, and reduce labor while the delivering party gets to earn squarely. If you are managing a business, a very strategic way to do it is to determine your company’s core competency, focus on that, and then delegate the rest. While outsourcing definitely shows us the fair side of the coin, it is always best to consider the possible ill effects that it may cause before deciding to outsource. Just like everything else that moves under the sun, it is not always heaven. Outsourcing pros and cons do exist.

PROS

  1. Being able to focus on core competencies. Instead of spending so much time in fulfilling back office jobs and other administrative functions that do not necessarily require you to be on it, why not outsource them? That way, you can take care of the core functions of the company and generate better revenue from there. For instance, if your core strength lies on digital marketing, you can probably outsource your bookkeeping tasks to an accounting firm while you take sales and marketing center stage.
  2. Low labor cost. This is probably the most obvious advantage of having to outsource. Some business processes are only meant to be carried out temporarily, so hiring a full-time employee may not be a good idea. Aside from the fact that most of them are expensive and have to paid for a full-time salary, it is quite unjust to hire and just fire once the short project is completed. On the other hand, paying for vendors in short-term contracts usually does not cause any issue. Therefore, you can invest more in other relevant processes such as marketing or sales. In such case, your return of investment increases.
  3. Improved innovation. You can be a jack of all trades but surely, you can’t be a master to all of them. The key is to know what types of tasks to outsource. It makes sense to outsource jobs that are not really within your line of expertise. Let the experts take care of them so you get maximum quality in every aspect of your business. For example, if you need a company website and you only have basic knowledge when it comes to coding, why not hire a developer who can do all sorts of coding and premium designs? A website is very essential in building your credibility online so it is not the right time to test your coding skills.
  4. Faster delivery. This is most especially true when you are outsourcing tasks to a vendor. In the above scenario, an expert developer may only need less than a month to get your site alive and kicking whereas an inexperienced self-taught coder would take a year to finish one. Just imagine how much you can accomplish when you are doing sales, and the rest are building your website, generating your leads, and bookkeeping your assets all at the same time. That doubles your productivity.

CONS

  1. Confidentiality Risks. This is most applicable when you are outsourcing your Recruitment, HR, Payroll, Cash Flow, and other functions that contain confidential information. Although third-party providers normally sign up for a confidentiality agreement, that doesn’t stop you from exposing top secret files to them.
  2. Deliverables and Performance Issues. Remember that not all outsourcing agents are reliable. That is why you need to be careful in choosing your outsourcing partner. Most issues stemming out from unreliable partners are substandard delivery, low quality output, extended turnaround time, communication and culture barriers, irresponsible staff – all of which contribute largely to damaging your productivity. Worse, it may just be like a domino effect that impacts all your other business functions thereby ruining your reputation and your business in general.

Hidden costs. Although outsourcing can help you save a great deal of money, don’t be too excited with the idea. Many client companies simply pay for the charges thinking that it is lower than what they would have spent if they didn’t outsource. The truth is, some vendors impose hidden charges due to the client’s lack of meticulousness. It is important to understand every inch of what you are paying for and why you are paying it.

Losing control of the business process. Whilst is it a good idea to outsource so you can focus on your core components, never be too slack on your entire operations. Some clients just keep outsourcing and outsourcing until they find themselves totally losing control of their own functions.  The best way to overcome this is to monitor all of your operations closely even if your vendor is doing well.

It is imperative to consider the pros and cons of outsourcing before considering of partnering to a service provider. It is equally important to choose the right vendor too as not all third-party providers are reliable enough. Know when to outsource, what jobs to outsource and when the right time is. There is always a strategy for everything, so don’t outsource just for the heck of it. Take note that outsourcing can possibly take your business to the next level and can even provide you great returns, but when performed improperly, it could ruin your entire business functions. Outsourcing can indeed make or break your business, so do it wisely.

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