Pros and Cons of Outsourcing

What does outsourcing and offshoring mean?

Outsourcing is the process of assigning a company's business processes to an external agency in lieu of enhancing service quality, driving innovation or deriving benefits of lower labor costs. When outsourced to organizations located in other countries or to foreign subsidiaries, Outsourcing often takes the form of offshoring, also known as offshore outsourcing.

What are the effects of outsourcing?

The effects of outsourcing are subjective to the industry and the purpose for which the same was undertaken. However across industries outsourcing is primarily undertaken to enable companies to generate better revenue recognition and to provide them an added competitive differentiator. While done with the best of intentions, outsourcing has a telling effect on quality of products and services delivered as a consequence of this, either enhancing or lowering quality.

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While there could either be an increase or decrease in the turnaround time while outsourcing, it could also result in improved or decried customer service. Outsourcing, primarily undertaken to provide companies the competitive edge, can also result in easier management and better productivity based on how effectively the process in managed.

What are the pros and cons of outsourcing?

Outsourcing is often undertaken to provide enterprises a competitive advantage by delegating business process to external agencies and realizing the benefits of low labor, better quality and improved innovation. While this provides a good picture of the fair side of the coin, most managers however need to grope with the possible shortcoming of the process and the corresponding impact on the company's core processes. To best analyze the opportunities presented it is essential to reflect upon the advantages vis-à-vis the disadvantages of outsourcing.

The pros of outsourcing

The pros of outsourcing often positively reflected by enterprises across industries include -

• Better revenue realization and enhanced returns on investment
• Lower labor cost and increased realization of economics of scale
• Tapping in to a knowledge base for better innovation
• Frees management time, enabling companies to focus on core competencies while not being concerned about outsourced routine activities
• Increases speed and the quality of delivery of outsourced activities
• Reduces cash outflow and optimizes resource utilization

The cons of outsourcing

Often weighed with the advantages before any decision on outsourcing is undertaken, the following represents some of the possible disadvantages often dwelled upon -

• Possible loss of control over a company's business processes
• Problems related to quality and turnaround time
• Sluggish response times coupled with slow issue resolutions
• Shortcomings in performance vis-à-vis expectations
• Lower than expected realization of benefits and results
• Issues pertaining to lingual accent variation
• An irate customer base coupled with enraged employee unions