Business processes outsourcing is no longer a new concept. It’s been more than two decades since this concept has whetted it’s feet in the market. Over the time, it has proved to be a boon for some businesses while for some it has brought about a business mismanagement. The main purpose of outsourcing is to ensure better results in key business elements like supply chain management, logistics, Human Resource Management and other important processes. By subcontracting these non-core business elements and activities to third party service providers, these businesses can actually focus their resources and energy on their core products and services. Also, it adds to their cost savings as they don’t have to invest separately on a team or infrastructure for carrying out these non-core business activities.
Benefits of Outsourcing:
There are many benefits that outsourcing a business activities bring in.
- Cost Effectiveness:
The first and foremost advantage that meets our eyes when it’s the topic of outsourcing a business process, and the major purpose that leads businesses to adopt outsourcing strategy is cutting down on expenditure that they have to bear for carrying out these activities. Upon outsourcing the non-core activities like human resource management, logistics and customer service, the investment that needs to be done on recruitment and infrastructure gets completely eliminated out of the expenditure list of the company. Apart from that, if the outsourcing is done from another country or region where the cost of the required services is lower than what it is in the corporate location, it is an added advantage in the cost factor.
- Better Service & Increased Efficiency:
When a business needs a service like customer care or human resource management, and plans to carry out these activities in-house, they need to hire proficient resources for the same which involves investment of an ample amount of time and money. However huge this investment might be, the business definitely won’t be able to compete with the efficiency of the big players in that sector as that not their core competency. So, outsourcing such non-core activities to experienced outsourcing partners who can deliver better complex outsourcing projects with putting in their years of experience and competency in that field.
- Cuts on Extra Investment:
When a particular business activity is outsourced, the outsourcing partner takes care of carrying it out and thus maintains an infrastructure and the required resources for the same. This eliminates the cost of infrastructure and resources off the budget list of the business.
- Flexibility in switching:
Outsourcing a service is done on the basis of a contract and that’s valid for a limited period and also adheres to certain terms and conditions. If one isn’t happy with the services of an outsourcing partner, they can easily switch to a better outsourcing partner and that doesn’t bring about any losses to the business. Also this process is quite faster. Whereas, if a business hires a team for a particular service and finds it to be uncompetitive, replacing them with a new team is a time taking process and one has to pay off a minimum amount of salary to these resources, so this brings about losses to the company.
Disadvantages Of Outsourcing:
Though outsourcing services that doesn’t belong to the core domain of service of a business is considered to be an ideal model these days, there are also a few shortcomings of adopting these model.
- Loss of Managerial and Operational Control:
When a particular business service is outsourced from another company, they work with their own terms, standards and mission. They don’t adhere to the guidelines laid by the company whose service is being outsourced. Rather their main aim is to make good profits out of the services they offer.
- Information Security Threat:
This is an era of information. Information plays a vital role in making or breaking almost any business in the market today. In other words, one can day information is the life blood of a business. When a service is outsourced from an outsourcing there is always a risk of the confidential information like client data might be leaked which is unhealthy for the growth o any business.
- Quality Issues:
As the cost of a particular service is fixed, the only way to increase profit is to decrease the cost of production. In order to cut on the production expenses the outsourcing company might tend to compromise with the quality. The business who outsources this service doesn’t exercise much control over these issues.
A real-time example that can be cited here is the Boeing 787’s problem. The Boeing’s 787 dreamliner faced a several electrical flaws which led to it’s current grounding. The engineers blamed the outsourcing partner saying that the poor quality components used by them were largely responsible for this issue.
- Ill Publicity:
Usually the word outsourcing sounds good to business people as they understand the benefits and the reason why it is done. But to common people, the word outsourcing brings in an impression that the company is actually incapable of handling varied services itself and thus they lose confidence on that company.
So it really a boon or a bane?
As discussed above, one needs to analyse the pros and cons of outsourcing a service and work out what best suits their business and the economical environment. It might work well for some business and might prove to be a curse for some other businesses.