Outsourcing as it is: what do we know about it

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Shane Gau

Lead Digital Transformation Consultant

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    Lot’s of us have heard about outsourcing, but not so many really understand what is what. We won’t waste time in vain. Let’s go ahead directly to the subject and take a look at “outsourcing” details.

    Basic concept

    The term “outsourcing” literally means the use of foreign resources. And don’t be afraid of the word “foreign”. In the case of outsourcing, nobody will blame you for lack of patriotism or in treason to domestic manufacturers.

    Basic concept of outsourcing

    How today the perfect scenario looks like? You focus all the resources on the activity, which is essential for your organization, and give the rest to the professional partner and make him take care of it.

    In other words, today for a successful business there is no need to do all the non-core functions related to the main activity of the organization or management of the company and its staff. You can just entrust the management of these processes on the specialized organization in your particular area, which has the knowledge, experience, and technical equipment, if necessary.

    Pros and Cons of Outsourcing

    Hiring the outsourcing company doesn’t mean that after giving them the project you will just sit back and wait. This implies a permanent cooperation, communication, and control. And now let’s move on to the most interesting part of the article.

    Pros and Cons of Outsourcing

    Pros

    Transfer of one or more parts and functions of the value chain to the external partners has a number of strategic advantages:

    • reduction in expenditure. That is the first thing even the novice marketer will tell you. With the right outsourcing company you will get a product or service with higher quality but pay less money;
    • improving the innovative capabilities of the company through the cooperation and partnerships with world-class suppliers who already has great intellectual potential and a high innovative experience;
    • accelerating the acquisition of resources and skills;
    • it provides greater flexibility in case of sudden changes in market environment or customer preferences: easier and cheaper to find new suppliers with the necessary capabilities and resources, than to rebuild the company’s internal operations, eliminating some power and resources and creating new ones;
    • allows you to focus on those operations that first of all are effectively carried out among your employees within your own company, and second, making strategic sense to be kept under its control;
    • since the contracting authority transfers to the outsourcer part of the functions, it has the ability to focus all attention on the main business of the organization. In addition, previously involved organizations resources can be reallocated and invested in the maintenance of the main business;
    • increases speed and the quality of delivery of outsourced activities;
    • there is no need to hire a large workforce. More than enough to keep those without which you simply can not run your business;
    • outsourcing provides significant advantages in the business contraction.

    Cons

    • the company runs the risk of leading beyond too many activities or losing part of its own resources and capabilities. In such cases, the company can lose its own resources, capabilities, and activities, that were ensuring its success in the market for a long time;
    • psychological cause: not every company will entrust internal information outside the organization;
    • the transfer of some functions to the outsourcing company is not practical for large organizations. It can lead to loss of confidentiality of information and to the reduction of efficiency in providing the necessary information for the management of the organization. Leakage of confidential information, in turn, can lead to a loss of competitiveness of the company;
    • in addition, giving lots of functions to outsource, the organization can increase costs. It should be noticed, that the excessive outsourcing “enthusiasm” may cause to the fact, that the customer will totally dependent on foreign performers;
    • we can’t deny a high risk of losses due to the low quality of services. That is why you should be very careful while choosing the company for outsourcing;
    • what can also happen, that the company-outsourcer may go bankrupt, so the customer will be forced to use the services of the new outsourcer, and that will lead to more moral and material costs.

    Potential risks

    To avoid some hardships in the future, here’s a small list of risks that may be encountered.

    Potential risks of Outsourcing

    Risk 1. Lack of experience between the outsourcing companies and the customer on the one hand, and declared the experience of the Contractor-outsourcer – on the other. To avoid this situation, you can through the “point” of tests, recommendations, test phases of interaction.

    Risk 2. The lack of standards and method entails the complexity of the measurement of the result and quality. To avoid such problems, you can try to break the contract on the results, by reference to measurable standards.

    Risk 3. Tax risks. In other words, there are higher risks and interests in the contracts of services and complexity of an economic benefit.

    Risk 4. Lack of effective project management.

    Risk 5. High expectations of an incredible result; lower than expected realization of benefits and results. To be honest, here can be 50/50.

    Risk 6. Loss of critical knowledge for businesses within the company (loss of confidential information).

    Risk 7. Lack of customer focus. An outsourced vendor may be catering to the expertise needs of multiple organizations at a time. In such situations, vendors may lack complete focus on your organization’s tasks

    Before you leave this page

    We have already noted that the main cons of outsourcing are a lack of control over the activity of organizations or specialists who offer services. But at the same time, outsourcing ensures continuous trouble-free operation (no concept of vacation and sick days). Outsourcing is a major time-saving (you can buy ready-made solutions or infrastructure). Outsourcing means greater transparency plus an assessed process and the result in finished form. Change of supplier (outsourcer) easier than a change of staff. When outsourcing, company significantly reduces their risks (sharing them with the outsourcer). Outsourcing “leads” for a quality improvement (professionals in their field, the experience of similar projects).

    Outsourcing as it is: what do we know about it

    With all these pluses and minuses of outsourcing to be considered before actually approaching a vendor, it is always preferable to specifically find the importance of the tasks which are to be outsourced. It is always beneficial for an organization to consider the pros and cons of offshoring before actually outsourcing it.

    All you need – is to set right targets, to choose the right company and to start cooperation. We hope that the article was exhaustive, but if you still have doubts – feel free to contact us. With us, you will only have huge pros!