Advantages and disadvantages of outsourcing

Advantages and disadvantages of business process outsourcing

Outsourcing business services is a common practice between small and medium businesses. When used in the right way, it can help you achieve your business goals faster, more seamlessly and efficiently. Usually, companies are seeking outsourcing for cutting the costs. But the benefits of it go further than that. Whether or not to outsource your business activities and services is an important decision that requires a lot of thinking and evaluation. As the outsourcing industry grows day by day, it might be the best time to learn more about the advantages of outsourcing, its drawbacks, and how it might affect the success of your company.

Advantages of outsourcing

Outsourcing core or non-core activities can be beneficial for all kinds of companies, from small local businesses to large international enterprises. Knowing the benefits of outsourcing and how it can help your business strive, will help you determine if business process outsourcing is something you need to consider for your business. Here are some of the most common benefits that companies consider before making the decision.

1. Access to skilled expertise

Outsourcing gives you access to skilled expertise that you would not be able to acquire otherwise. You might have a brilliant in-house team that is working effectively on particular tasks. However, one person or group cannot be great at everything. By outsourcing some of the company's activities, you will have niche experts working for your business. It will significantly improve performance. At the same time, your team's capacity will increase, giving them the ability to focus on other tasks.

2. Access to a larger talent pool

When companies are hiring, they usually have a local, small talent pool. Widening the talent pool to have access to the better-qualified candidates outside the local area can result in increased hiring and allocation costs. One of the advantages of outsourcing is that it solves the issue of the talent pool for businesses. While outsourcing, you can find the best professionals that do not have to be from the local talent pool. This way, you can get the highly-skilled experts without any difficulty or increased costs.

3. Reduction of the costs

Outsourcing can reduce the cost of the company in several ways. First and foremost, you can reduce the recruitment, training and onboarding costs. As you are paying for the service, not for the labour, you do not have to spend your human or financial resources on hiring and training an employee or the team.

Outsourcing expands your reach to the global talent pool. With the offshore outsourcing vendors, you can hire better-skilled professionals with the right price. At the same time, hiring an outsourcing company to perform the service for some time, is always more cost-effective than hiring employees for the whole year. This advantage of outsourcing is especially beneficial for companies that have increased seasonal demand. Instead of hiring and training an employee to expand the capacity when the demand is high, companies can outsource services for a particular period as many times, as they need.

Another way outsourcing can help you reduce the costs, is to outsource services that do not need a full-time employee for the whole year. Bookkeeping is a good example. It is a vital part of the business, but at the same time, it might not need a full-time employee. By outsourcing such services, your company can reduce cost significantly, without sacrificing quality.

4. Risk management

One of the main advantages of outsourcing is risk-sharing and generally, the better risk management. Recruiting new employees has a risk in it. Adapting to the new work-place and getting to know the employee takes time. At the same time, employees need to find out if the company they started working is the right place for them. Usually, this process takes up to six months. After some time, the person you spent your resources on while recruiting and training can walk away from the company. In such cases, you either need to find the replacement as soon as possible and often hire the first suitable candidate. Or else, you divide the tasks to the other team members. None of them is the best-case scenarios for your business.

When you outsource, you do not face such an issue, as you are not recruiting employees. It creates consistency in your company as you know that the service you have outsourced will be performed no matter what.

Besides the risks connected to recruitment and employment onboarding, your outsourcing vendor also takes over the risks related to the outsourced service. It guarantees consistency of the performance quality.

4. Working around the clock

While some consider the time zone differences as a disadvantage of outsourcing, it can be very beneficial for your company. With strategic outsourcing, you work around the clock and have the service available 24 hours a day. It is especially helpful in customer care and support. If you have an international business, that serves clientele from around the world, or you are providing 24/7 support for the local customers, you can easily have it with outsourcing. At the same time, you can avoid the higher costs of employing workers for different shifts.

Working around the clock can be beneficial for the other services as well. For example, if you are outsourcing software development, you can accelerate the speed of the project. You can also get the same benefit of outsourcing if you need continuous services, such as data moderation.

5. Focusing on core activities

The ability to focus on core activities is crucial to have a successful business. Outsourcing gives company management ability to clear their mind from the non-core activities and work towards the core ones. Often companies tend to lose the focus from them, to serve the clients. While in the short term it might not seem a big issue, in the long-term perspective, it can seriously interfere with the company goals.

By outsourcing non-core services, you will be able to drive the human and financial resources to the core activities.

5. Increased efficiency

Increased efficiency is the result of the advantages of outsourcing. If done right, you can get all the benefits from it and drive your business forward. When the company outsources non-core activities, the management of it is more focused on the most crucial parts of the business. Outsourced services are managed by the professionals in the particular niche that results in a better performance. The core team of the company is working on tasks that matter the most more efficiently. On top of that, the company can save money and resources and use them for the core processes.

Disadvantages of outsourcing

Everything has two sides, and so does the outsourcing. Surely enough, there are some disadvantages of outsourcing you need to consider alongside the benefits to make the right decision. While these disadvantages might not affect every company, it is good to be aware of them to avoid any drawbacks.

1. Lack of communication

The lack of communication is not always the issue, but it is good to consider it before outsourcing. When you are outsourcing your business overseas, you need to keep several factors in mind. Where is your vendor located? How will the time zone difference affect your communication? What will be the preferred communication tool to use when contacting the vendor?

Asking these questions to yourself and your future outsourcing vendor in advance will significantly reduce the disadvantages of outsourcing. Based on this information, you can create a communication plan with your outsourcing partner to make sure that there will not be any issues.

2. Lack of control

When you are outsourcing your services, you do not have as much control over it. As when you are outsourcing you hire a contractor, not employees, you cannot have the same control over it, as on your in-house team. While you are still the one who gives the directions on what the outsourcing vendor should accomplish, the level of control is not the same.

It is not necessarily a disadvantage of outsourcing, as you are outsourcing because you trust the vendor, and you need to free up the resources. Also, the negative impact of it highly depends on the company structure and overall management style.

3. Impact on company culture

When considering to outsource some of your business activities, you, as a company owner, might be focused on the advantages of outsourcing. But while you are carefully evaluating the financial and operational benefits of it, you also need to think about your company culture.

Outsourcing does not always affect company culture negatively. But the positive company culture is one of the biggest motivators of your employees and increases the level of productivity. Thus, it is preferable to evaluate the possible impact of outsourcing on it before you make any decisions.

4. Data protection issues

Data protection might be one of the biggest cons of outsourcing. It is something you need to think through before you start searching for the outsourcing vendors. When you are outsourcing, you are giving some of your information to the third party. At the same time, depending on the service you are outsourcing, your third party has access to your data.

You need to consider it, especially if the service you are outsourcing includes customer's personal data. Not to put the data of your company, or your customers under the security risk, you need to consider the data protection risks before outsourcing. By finding the right vendor, you will be able to reduce the risk of the data protection breach to zero.

Now you know the advantages and disadvantages of outsourcing. There are many ways you can benefit from outsourcing, but you need to analyze if the drawbacks can affect your company. Consider what kind of impact it might have on your company culture. Think about how can your company deal with the lack of communication and lack of control, if these issues arise. After careful analysis, you will be able to decide if outsourcing is the right decision for your company. This way, you will manage to benefit from all the advantages of outsourcing and reduce the negative impact to zero.

Written by: Polina Boynova on July 2, 2020

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