Outsourcing – pros and cons

Without its technical terms, outsourcing is basically a company’s practice of hiring another company to perform the services that could have been performed by their own employees. There are many reasons why companies are now jumping on the bandwagon of outsourcing some of their services. (Actually, it was an old practice.) These outsourced services, outsourced to other companies, are typically call center services, email services, and payroll. These specialized jobs are part of the outsourcing trend practiced by many companies today.

Reasons

One of the main reasons why companies choose to outsource is reduced company resources, both financially and in terms of personnel costs. When a company expands (which can happen suddenly), growth can begin to eat away at the company’s resources.

From a financial standpoint, the company may not be able to support the growth with the necessary cash injection to sustain the expansion. This also applies to their human resources.

With growth, workers could be sucked in with the new growth, reducing the company’s productivity in its core areas. The service companies can get the job done at a lower cost (which does not overwhelm most of the company’s resources) and have the necessary manpower.

Different reasons

Efficiency sometimes suffers when there is a sudden expansion that cannot be accommodated by the company’s current staffing and other resources. For example, if there is a large demand for a large number of their products, other departments may not be able to do it.

For example, the purchasing department might need so many men to do the purchasing of raw materials. Outsourcing the purchasing department is a good move and costs less.

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Other reasons could be that overhead costs could be disastrous for the company’s budget and current plans. Or maybe an offshoot of its growth is impossible to hit. If the company has grown so much that it needs a larger office, it is cheaper to outsource the functions of the planned new additional employees. (Relocating the entire office to a larger location is definitely time, labor and monetary consuming.)

Businesses also have to deal with production demands that come and go cyclically within a year. Outsourcing additional resources at times of such high demand can alleviate the company’s problems.

The good thing about the deal is that the contracted periods for outsourcing these additional jobs can follow cyclical production needs. (The production department of a toy company may need more workers in the middle of the year to produce the goods needed for Christmas or some holidays, for example.)

Disadvantages

On the other hand, this new business model of delegating some important aspects of work from one company to another had sparked a mini-controversy that to this day has not been fully resolved. Certainly there are those who are not fully convinced of the feasibility of such an arrangement.

The biggest argument against this deal actually centers on the company’s relationship with its customers. In short, it can lead to customer dissatisfaction. Reasons can range from lower quality of work performance, unnecessary dilution of trade secrets between company and customer, etc.

control

Control is also put to the test. Some aspects of the company are at risk of falling out of the company’s control as the outsourced company makes decisions that would have been better managed by the parent company.

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Some clients are not fully convinced that the outsourced company can operate as efficiently as the original outsourced company. When this is the case (most companies can do this in practice), customers feel that it might be better to turn to the new company than to their old supplier or contractor.

On top of this threat rests the growing danger of delayed communication leading to delayed implementation. Without proper management and assignment of responsibilities, there is a tendency for confusion to arise.

Outsourcing had also raised a political issue – social responsibility. As more companies move jobs overseas, it is said, parent company employees have fewer opportunities. With this debate and questions still in the air, more and more companies are outsourcing part of their work. Businesses and their managers readily see the current trend as a result of the current situation in trade and commerce around the world. For now, it looks like outsourcing is here to stay.

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