Outsourcing involves allocation of specific business operations to third party agency that is an expert in providing a specific service. Some of the business processes are one-term and the management does not find it feasible to allocate in-house experts to perform the mundane time-consuming tasks. The third party service provider, on the other hand will take the responsibility of performing the tasks within the negotiated cost and deadline. Still, understanding the benefits and shortcomings of delegating your business to a third party is the key element of conduction the operation successfully.
The best part of the outsourcing is that you can choose whether to outsource the entire project or only a part of it. It allows managers to focus on their core business and facilitate the start advantage by alleviating operational costs. Outsourcing is often used as a strategic initiative which improves quality and customer service, simultaneously reducing the costs. In addition, it can be observed as a permanent solution or a temporary arrangement that would bridge the gap in personnel.
One of important reasons behind sourcing is an improvement of a faulty product design. A third party agency is delegated to assess and re-engineer the existing solution, leaving the source company experts free to work on new projects and focus on competition.
Some of common operational functions that get outsourced are human resources, IT, accounting and payroll processing facility management, manufacturing order fulfillment, customer call centers, marketing research, legal, etc.
An outsourced business function is directly related to significant cost savings. Office space expenses an employee compensation cost as well as expenses related to providing a works pace are minimized, releasing funds and resources for other purposes.
Similarly, when companies reach the boundaries of their expertise, and delve into business functions and purposes that are new and not necessarily related to a company’s core business, outsourcing enables them to focus on their main filed of research, not tampering with areas that otherwise may occupy time and extra resources. For example, a company that produces pet food will likely hire an outside marketing expert, rather than employ one on full-time.
By delegating vendors which are more specialized in sought processes and have more expertise in that area means that the final quality of a product or service will be better. An example would be outsourcing a webpage design to a specialized IT outsourcing company which would ultimately have the resources to hire, train and control their personnel on a level that wouldn’t be feasible for the company that is outsourcing.
Another benefit is that the contracted company has to fulfill certain standards of service and quality, which is automatically connected to the customer satisfaction. An example is if your accounting function is outsourced, and an accountant calls in sick, it is their obligation to find a proper replacement and meet the requirements.
There is always an option that outsourcing can expose the organization to potential risks and legal issues. For example if a washing machine manufacturer delivers a unit with faulty parts that have been outsourced, it is the manufacturer that stands behind the brand that carries the weight of repairing the potentially damaged reputation. Although the third party would have to correct the issue, it is the manufacturer that has to face negative public image.
If the contract fails to determine a quality levels for the outsourced product or service, there is always danger of poor quality output. On the other hand, in order to save on costs, some contracts are intentionally closed without service quality levels.
Sometimes language issues may present a problem for the outsourcing company. A scenario is a customer who calls the support center that is outsourced to a different language-speaking county, they might not be satisfied talking to a person with a strong foreign accent. In the same way, outsourcing jobs to other countries may evoke negative public opinion, because of the sympathy of lost jobs.
There is always the potential that an outsourced employee will lack the knowledge of the company organization and mission. The problem may arise when a third party employee comes in contact with the customer and fails to understand the mechanisms of the company, resulting in negative customer experience.