Outsourcing is the process of contracting a business function or any specific business activity to specialized agencies. Most companies outsource their non‐core areas.
Advantages of Outsourcing:
The advantages of outsourcing are as follows:
i. Overall Cost Advantage:
- Outsourcing eludes the need to hire individuals in‐house; hence recruitment and operational costs can be minimized to a great extent.
- Outsourcing helps an organization save on time, effort and training costs.
ii. Emphasis on Core Process Rather than the Supporting Ones:
- Outsourcing the supporting processes gives the organization more time to strengthen its core business process and focus on improving the quality of its product / services.
iii. Low Manpower Cost:
- Manpower through outsourcing is usually available at a lower cost.
iv. Access to Professional, Expert and High‐quality Services:
- Most of the times, tasks are outsourced to vendors who specialize in their field.
- They have specific equipment and technical expertise to perform the task effectively, faster and with better quality output.
v. Investment Requirements are Reduced:
- The organization can save on investing in the latest technology, software and infrastructure and let the outsourcing partner handle the entire infrastructure.
vi. Increased Efficiency and Productivity:
- The organization experiences increased efficiency and productivity in non‐core business processes.
vii. Knowledge Sharing:
- Outsourcing enables the organizations to share knowledge and best practices with each other.
viii. Stimulates Entrepreneurship, Employment and Exports:
- Outsourcing stimulates Entrepreneurship, Employment and Exports in the country from where outsourcing is done.
Disadvantages of Outsourcing:
The disadvantages of outsourcing are as follows:
i. Lack of Customer Focus:
- An outsourced vendor may be catering to the needs of multiple organizations at a time. In such situations, vendors may lack complete focus on an individual organization’s tasks.
ii. Threat to Security and Confidentiality:
- When an organization outsources, it involves a risk of exposing confidential company information to a third‐party.
- There is always a threat of the misuse of the company’s information by the contractor.
iii. Dissatisfactory Services:
- Some of the common problem areas with outsourcing include stretched delivery time and sub‐standard quality.
- Many organizations may find it difficult to manage the contractor as compared to managing processes within the organization.
iv. Ethical Issues:
- Some organizations ignore ethical issues related to outsourcing.
v. Other Disadvantages:
- Include misunderstanding of the contract, lack of communication, poor quality and delayed services amongst others.
