Outsourcing means an arrangement between a company and another entity for the performance of operational tasks that might otherwise be performed by the company’s inhouse staff. A lot of companies now outsource some of their corporate operations such as customer service, payroll, manufacturing, and software development. Like most business tools, outsourcing has its share of advantages and disadvantages.
Outsourcing manufacturing evolved into a multibillion dollar business simply because it offers a lot of advantages. The most obvious reason companies outsource is related to the company savings it helps generate by offering less expensive alternatives to having tasks completed by an inhouse team of workers. Inputting the cost in benefits and standard wages for inhouse workers adds up to a sizeable expenditure, an issue squarely addressed by outsourcing.
Outsourcing also allows companies to focus on its core businesses by delegating non-core tasks to third parties. For expanding companies, outsourcing also provides a cheaper alternative in establishing footholds in other countries. In some cases, outsourcing also helps improve output quality in non-core departments. This is attainable through service level agreements with excellent outsource firms such as Philippine-based call centers and software houses. The agreement also legally binds the outsourcing provider to meet the quality and timeline requirements of the company.
While delivering benefits in many areas, outsourcing also has its negative aspects. One of the main drawbacks related to the increasing adoption of outsourcing by many western companies is the reduction of available jobs in the company’s home city or country. Because it is cheaper to outsource off shore staff, the local job market suffers. Fewer companies will be sufficiently eager to hire local workers that entail higher costs in wages and benefits compared to their outsourced counterparts.
Moreover, in companies which opted to outsource their customer relations department, outsourcing restricts companies’ ability to directly engage their customers. Because the call center is outsourced, much of the valuable customer feedback are conveyed to outsourced staff who may or may not escalate customer issues that initially seem insignificant.
When outsourced customer care staff are not properly trained, moreover, customers may become disappointed, or even irate enough to cease patronizing the company product or service. In some instances, outsourcing may also result to the pirating of some of the company’s trade secrets as well as unforeseen but disastrous delays in project completion when the outsourcing provider abruptly closes operations. In a few locations, language barriers and unreliable online connections significantly limit the benefits of outsourcing.
Given upside and drawbacks of outsourcing, the final decision still rests on the company and its understanding of its core values and goals. If outsourcing works towards the attainment of its strategic goals without impinging on its corporate values, then there is no reason not to outsource. Otherwise, the company should explore other means of chipping operational expenses or realigning its business model.