Outsourcing involves assigning some of the business tasks or a department to another business. This is done when a business cannot handle all of its activities internally. They can also do so in search for expertise of a specific task.
The businesses that are mostly involved in outsourcing include manufacturing, logistics, customer services, recruitment, web designing, information, content development and technology maintenance among others. The factors that influence decision making on outsourcing includes staff, finances, information characteristics, agreement issues, and vendor issues.
Out sourcing involves two businesses which come in to a contractual agreement to exchange services for payment. A business contacts another business to carry out a particular task and in return they pay for the services provided with. Business people do outsource in order to get time to do other significant roles. This saves time and can allow a business person to do other businesses thus increasing his profits. Due to a lot of work businessmen have during the day, many people have chosen outsourcing as the way to go.
This is less tiring and one can be able to attend to other things without abandoning the business. This ensures continuous smooth flow of the business (Nadeem, 2009). Outsourcing has its advantages and disadvantages. This paper will explore on the advantages and disadvantages of outsourcing.
When outsourcing a businessman does not need to employ permanent employees; this saves on money that could be used to pay wages. The business person only would do outsourcing when there is really need to do so. This saves on money that could be used to pay employees. This increases business profits. One can then use such money to expand the business or invest somewhere else. Full time employees spend a lot of business money, which could be saved. Permanent employee normally has many expenses for they will have to enjoy full benefits like house allowances or medical allowances. The contracted person on the other hand only receives the payment agreed upon without other benefits. This can add up to the savings and maximization of profits. Other business people can chose to hire another vender outside their country and they end up paying less wages than they could have paid in their country. Also when outsourcing one does not need much office space and this cut down on the expenses that could be incurred in setting an office and buying of equipments (Nadeem 2009).
When outsourcing a businessman gets time to be committed to other income generating activities. Time of production is greatly reduced as the vendor will focus on the task given to meet the requirements within the given time, For example, when hiring an external auditor in to your business.
The auditor would carry out the task faster than having a permanent auditor who will take all his time doing the same task. The business is able to focus on the core activities and outsourcing for activities they are not good at. This saves time that can be used for marketing the business and attending to loyal customers.
When outsourcing the management does not need to take a lot of time conducting interviews for they will go for the already established companies known to offer good services. The company can also opt to hire recruiting company to conduct interviews on their behalf and recommend the best suited candidates.
This is beneficial to the company for a lot of time will not be spent to screen an employee and they will also get good services from the out sourced experts for the task to be done. Outsourcing also allows the company to hire extra employees when they really need them and release them when the task is completed, for example, when an organization is conducting a research it could prefer hiring temporary research assistants to conduct the research within a specific time (Manning, Massini and Lewin, 2008).
A business has many operations. Some of these operations spend a lot of money and a business cannot be able to control them. This operations need to be outsourced. Operations that have poor management and have grown with time should be outsourced to the people who are experts in that area.
For example, when a company needs to manage their website and market their business online they should opt to outsource these activities by hiring an information and technology company to be managing their website. This gives a company more time and space to deal with other operations that are able to carry out efficiently (Overby 2007).
During a period when the business need more staff, it may experience some instability and this puts a business into risk. Outsourcing will save the company the risks that can be brought by inexperienced staff and this ensures the stability of the company for it will not be affected by substandard operations.
Outsourcing the operations to the experts ensures continuity of the business for it will continue offering services of high quality to its customers. For instance, when operations of production of a certain product arise and the company does not have expertise in the production of that product, out sourcing will give a company a perfect product that will satisfy customers thus ensuring business continuity. The business avoids the risks of producing a substandard product that will keep the customers away (Overby 2007).
When a business does not have expertise in some areas that are important for the growth of the business, outsourcing of these activities would bring experts into the company. These experts can work along with the internal staff and they can gain expertise and experience from the outsourced workers. This assists in the development of internal staff. This is beneficial for a company will not need to outsource for the same activity again.
For example, a business may opt to outsource for external auditors who would work along with its accountants. With time the accountants will gain expertise in auditing and this will cut down on expense of outsourcing for the same operation in future. The management may also outsource for some experts from another company to come and train his staff for a specific period so as they can gain expertise and improve on their performance. This is important for continuous growth of a business (Nadeem 2009).
Outsourcing is known to be less expensive especially when it comes to staffing and company space but sometimes it can be very expensive. Sometimes working in house is cheaper than outsourcing. This is because some of the vendors are very expensive as they offer professional services and they claim they have much experience and that their services are perfect. There are hidden expenses that may arise in the process and the business is the one to care for them but not the contracted vendor.
When signing the contract agreement, the managerial pays for the agreed amount and any other expense like paying of the lawyer who will review the contract will be the business company and not the outsourcing company. These are the hidden legal fees. Outsourcing businesses are the ones who write the contract and so the business that wants the services will be disadvantaged when it comes to negotiations (Drezner 2004).
The vendors are only interested in making profits. The vendor will provide the services but they will cut on their expense or production services as much as possible. This can lead to products or services of low quality. This creates problems to the company and it might end up losing customers because of the low quality products. In case the company want changes for the poor quality it will mean paying extra for the change for it was not in the contract agreement (Drezner 2004).
The information of the company success is always kept confidentially for it makes it keep running. If the outsourcing company gets hold of this company it may lead to disclosure to the competing companies. The company’s data may be at risk of being disclosed to other people thus risking the security of the company.
The outsourcing company will share information on products and knowledge of the company thus it can be easily disclosed. The manager should carry out a thorough investigation on the outsourcing company and they must include a clause on confidentiality and the penalty in case of disclosure of the company’s information (Engardio 2006).
It is not easy to manage the outsourcing company than to manage the in-house management. The outsourcing company gains control of the task or department they are assigned. They cannot conduct it with the mission and vision of the company; with this the company loses it management to the outsourcing company. The outsourcing company is driven by the profit they are going to make but not the vision and mission of the company (Norwood 2006).
When the company outsource its services or its departments to the outsourcing company it becomes tied up to the financial well being of the outsourcing company. If the outsourcing company becomes bankrupt the company is bound to fall too. Thus, it is important for a company to do thorough investigations on the stability of the outsourcing company. There is a risk of getting into a business that is not financially stable for it can become bankrupt any time (Gareiss 2002).
The outsourcing company is less interested on customers and they focus their interest on expertise and the profit they will get. This leads to loss of customers. The company is the one that suffers the consequences of outsourcing and this may worsen to a point of the business collapsing. The company should be careful when outsourcing not to lose their focus on customers for they are the ones that keep the business running. They should not prioritize on expertise at the expense of their customers (Engardio 2006).
If the company gets rid of some workers at the expense of outsourcing the company loses publicity and the people in the community will think ill of the company. This leads to a company having a bad name in the society. Also outsourcing some of the activities in the business makes the workers loss morale of working in your company for they feel they are not secure on their job. This makes workers feel not satisfied and they may start looking for jobs somewhere else. The workers may resign when you least expect it (Gareiss 2002).
With the above advantages and disadvantages a businessman has to be very careful when making a decision to outsource some of the business activities. It is important for the business owner to evaluate the importance of the services that need to be outsourced to decide whether they really have to do so. To avoid business going down with the outsourcing company the business owner needs to do a feasibility study of the company he wants to work.
This includes investigating on the company’s financial stability to avoid going to losses when the outsourcing company becomes bankrupt. The businessman should also investigate on the quality of the services they offer. A businessman should consider outsourcing some of its activities in order to maximize the profits as much as possible. The advantages of outsourcing outweigh the disadvantages and thus outsourcing can be used wisely in order to maximize profit.
Drezner, D. 2004. The Outsourcing Bogeyman [Online]. Retrieved at: www.foreignaffairs.org [Accessed 15th May 2011].
Engardio, P, 2006. Outsourcing: Job Killer or Innovation Boost? [Online]. Retrieved at: http://www.patni.com/media/36804/The_Future_of_Outsourcing.pdf [Accessed 15th May 2011].
Gareiss, R, 2002. Analyzing the Outsourcers. New York, John Wiley & Sons
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Nadeem, S, 2009. The Uses and Abuses of Time: Globalization and Time Arbitrage in India’s Outsourcing Industries. Global Networks Volume 9, Issue 1, pages 20–40, January 2009.
Norwood, J., Carson, C., Deese, M., Johnson, N. J., Reeder, F. S., Rolph, J. E. and Schwab, S., 2006. Off-shoring: An Elusive Phenomenon, National Academy of Public Administration, pp. 35-47.
Overby, S., 2007. ABC; an Introduction to Outsourcing. Cambridge, Cambridge University Press.