When a business or company allows an external vendor to manage their business, the term used to refer to this action is Outsourcing. Any form of business activity that a business can manage from a different location can be successfully outsourced. Some of the business operations that a company can outsource include inventory and order management, payroll services, and functions like transaction processing. There are also several call services that a business can choose to outsource.
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When a company chooses to outsource a particular service, it loses complete control of that service to the service provider, which is a potential business risk. Before outsourcing any business activity, carefully study the pros and cons of the action and make the right decision.
Advantages of Outsourcing
A business may choose to outsource a particular project or activity due to a specific reason. Some of the benefits of outsourcing activities include:
The company will focus more on the main business projects. It will help the business use all its strengths on what really matters and delegate the minor roles to the other company.
2. Improved Efficiency
By choosing another better-skilled company at a particular task and outsourcing that duty to them, the company will get better services and be more efficient in their services.
3. Controlled Costs
The business can channel the amount of money saved due to outsourcing various duties elsewhere and gaining more profits.
4. Increased Outreach
By choosing to outsource certain projects, the business will access other facilities and capabilities that they could not have afforded.
5. Better Competition
By outsourcing, a business will increase its skills and knowledge and gain more strength in the competitive market.
6. Increased Flexibility
By outsourcing jobs, the business will improve its flexibility and agility and quickly adapt to the ever-changing market. It will also solve challenges more effectively while still cutting costs.
Disadvantages of Outsourcing
Outsourcing entails giving business functions to another party. The process of handing-over comes with risks such as:
1. Poor Service Delivery
The services may be delayed or under-delivered, tainting the company’s image.
2. Security and Confidentiality Issues
By outsourcing, you will have to share information and clients data that is dangerous.
3. Lack of Flexibility
While outsourcing services, a contract has to be signed. Making changes after signing a contract is quite a challenge and stressful.
4. Management Challenges
If the outsourced company experiences management changes, there will be friction between the two parties.
The company that outsources services could eventually run out of business and cause many inconveniences to clients and other parties involved.
Offshore outsourcing is better than fully outsourcing, although it has its challenges. They include:
- During handover, the business may hide provider selection costs.
- Some of the employees will have to be laid off, bringing about severance issues and cost-related challenges.
- The different cultures, time zones and language differences will cause lots of management challenges.
After crucially examining all the advantages and disadvantages of outsourcing, you should be able to make the right decision. If the cons outweigh the pros, it is better not to outsource.