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If you haven’t noticed it yet, many business organizations today are moving some of their in-house functions, processes, responsibilities, and activities to third-party service providers. This strategy is called outsourcing. It has gained popularity since the recent decade.
This industry occurs when contract agreements are negotiated and sealed with a vendor who assumes certain responsibilities in the company. These processes and responsibilities include production processes, human resources, quality control, customer service, key asset management, and other business functions.
It can be a temporary or permanent arrangement to bridge certain gaps, to acquire better systems at a lesser cost, and to improve production. More often, functions or business aspects that usually get outsourced are: customer call centers, information technology, accounting and payroll, human resources, manufacturing, facility management, legal services, and marketing research.
Why Entrepreneurs and Businessmen Outsource?
One of the frequent reasons for outsourcing is to reduce the organization’s overhead costs. This transfer of non-core tasks also allows organizations to focus on their core business and trigger a competitive edge over their competitors. Such initiative by entrepreneurs requires careful study of potential areas or aspects of the business. This way, they will be able to determine which part or if all aspects should be outsourced and consequently find out the outsourcing pros and cons.
Aside from the reasons mentioned above, one of the factors that trigger companies to outsource is significant cost savings. Most of the time, employers spend a huge amount of money on compensation for employees, setting up work spaces and facilities and other human and technology-related purposes.
Moreover, the business process provides a way for organizations to make efficient operations. It will be particularly useful especially if these are provided by vendors with specific specializations. This results to higher quality and faster turnaround time to produce products and services.
Advantages and Disadvantages: Identified
Understanding the outsourcing pros and cons can help business owners not only become aware of the advantages, but also to be cautious of the disadvantages as well.
It is really a difficult move. It could mean job losses and employee layoffs. This can fuel a negative impact or perception if done inconsiderately. It can also cause customer service issues if the service is outsourced to an incompetent or unreliable provider.
Moreover, doing it to a country or people who speak a different language can potentially cause or trigger communication issues. If customers are dealing with someone with a strong accent, for instance, it will cause communication issues that can affect the clients’ perception of the company.
Its destinations are countries that provide cheaper labor costs. This means reduction in manpower-related expenses and infrastructures.
One issue regarding this system is that service provider employees may not possess the same level of skills, knowledge, and motivation as that of in-house personnel. In addition, contracted workers may not have the same passion for work as that of regular employees. Such situation will certainly affect the productivity of the workforce in one way or another.
Dealing with outsourcing pros and cons requires addressing the issues of legal compliance and system security, especially when accessing confidential information through information technology functions.