The Pros and Cons of Outsourcing Various Functions of Your BusinessFebruary 2, 2010
by John Horning
The term “outsourcing” has come to primarily refer to the outsourcing of American jobs to foreigners. This is unfortunate because it automatically draws a negative reaction to the term. Outsourcing is actually a very broad concept, and has obvious benefits in many situations.
Outsourcing doesn’t only apply to business – it applies to people as well. In fact, we all outsource in our everyday life.
When you purchase an automobile, for example, you’re outsourcing its manufacture to an automobile company because you don’t have the ability to build it yourself. When you stop at your neighborhood “Fast Lube” to have your automobile’s oil changed, you’re outsourcing that task as well because of convenience.
We outsource food preparation to restaurants, education of children to schools, and road construction to the government, who, in turn, outsources it to private construction companies. As you can imagine, there are literally thousands of ways we outsource. Without outsourcing, we would all likely be living in primitive conditions.
Businesses use outsourcing as well, with the purpose of improving their ability to stay in business and compete. Commonly outsourced tasks include bookkeeping, payroll processing, telephone answering, 24-hour technical support, printing, insurance, legal services, etc. These tasks do not typically go to foreign companies – although they could – and with the advent of the Internet, this is happening with increasing frequency.
Advantages of Outsourcing
The costs associated with an in-house employee are generally higher than the cost of an outside service provider. For example, it’s frequently cheaper to hire an outside bookkeeping service to keep track of your accounting, even though their hourly rate is high, because you only need them for a few hours a month. You also don’t need to provide office space and all the related overhead related to an in-house employee. This all applies whether you’re outsourcing to a foreign country or not. But in the case where you are outsourcing to a foreign country that has a lower cost of living, you will have the additional benefit of reduced labor cost.
Access To High-Paid Talent
An outside provider may be your only solution if you need someone with particular skills such as computer programming or legal services. The outside contractor is able to provide this because costs are shared among all their clients.
Quality of Service
Outside providers are usually specialists, meaning they focus their efforts on providing services you lack expertise in. This in turn allows your business to focus efforts on your own area of expertise. The outside provider is also usually able to provide a more consistent level of service than you could with in-house employees.
Many functions related to your business, though not core to your business, are nevertheless critical to your success. For example, it may be essential that your customers be able to receive technical support 24 hours a day. You can provide this service through an outside provider who specializes in this.
Less “Employee Hassle”
This is one of the major reasons for outsourcing work to subcontractors. The hiring – and sometimes firing – of employees, along with the accompanying requirements of testing, training, record-keeping, payroll processing, tax-reporting, etc. is a headache that many businesses would rather outsource so they can focus on their core competencies.
Businesses that experience a fluctuation in their man-power needs can be assisted by an outside provider who has access to a significantly larger talent pool than you do.
Access to Better Technology
Most small business can’t afford to provide the latest technology for every employee. An outsourcing firm will more likely be able to do this as part of its core business.
Related to the principle of mass production, it is generally more efficient to have an employee focus on performing the same task over and over than to have him wearing several “hats” and trying to perform a variety of tasks with equal efficiency. When you outsource a business function, you are turning it over to someone who can perform the task more efficiently because they focus on it and nothing else.
Disadvantages of Outsourcing
When work is outsourced to a foreign country, you are obviously eliminating possible jobs in your own country. This can cause low morale among your existing employees and hurt your image in the eyes of consumers. The counter-argument here is that by outsourcing, the employer now has more money to spend on higher-paying local jobs.
When a function that requires the handling of telephone calls is outsourced to a foreign location, customer satisfaction is likely to decrease due to language issues. Poor quality telephone service is also a problem in some cases. These problems can be mitigated by outsourcing to countries in which the English language is spoken commonly.
Loss of Control
You will likely have less control over your business when you outsource part of it. Customers may not be handled the way you prefer and decisions may be made that you don’t approve of. This problem can be mitigated through good communication and reporting procedures.
Lack Company Knowledge
An in-house employee will have a better knowledge and understanding of your business than would an outside contractor, which, like the communications issues, can become a problem when customers are calling in for assistance. This is not always the case, however. For example, a contractor who specializes in providing technical support may be able to handle customer problems better than your own employees who have inadequate training. In addition, the outside provider can, over time, become knowledgeable and proficient in much the same way that an in-house employee would.
Employee morale is sometimes lower for outside service providers due to the monotonous and/or stressful nature of the work. This can lead to higher turnover than you might experience among your in-house employees. But, again, this is not always the case since in-house employees can have the same problem.
It is more difficult to protect customer information when outsourcing. There is no easy solution for this. It’s important to make sure your provider has procedures in place to safeguard information, and can provide some sort of warranty against unauthorized access.
Lower Quality Work
The old adage “you get what you pay for” can apply here, but not always. It’s also possible that quality will improve with outsourcing, depending on what function you’re outsourcing, and to whom.
Most of these disadvantages listed above are only applicable when outsourcing to a foreign country. In many situations, none of the above items are an issue. Conclusion
On the whole, the concept of outsourcing is a very good thing for any business. Nevertheless, your decision to outsource should not be taken lightly. The wrong decision can be very costly for your company.