Advantages and Disadvantages of Outsourcing
What is outsourcing? Sometimes an organization needs help with the development of a program or with offering an internal or external service, or just with the execution of certain tasks. In this scenario some companies like to use outsourcing as the solution. Outsourcing means delegating certain jobs and duties to another company and paying them to do it (Kroenke and Boyle 2018).
This can be a very good choice in case an organization has services to perform that are not their expertise. For example a store that sells cockatoos and similar birds will not spend precious time doing their own marketing and search engine optimization. They will hire an SEO company to do that for them, which includes data entry on several websites, creation and management of all social media platforms, content creation with keywords, website design and creation, blog posts, and so on. The bird seller probably has no idea how to do all that, but this is the SEO company’s specialty. Hence the famous quote from Peter Drucker “your back room is someone else’s front room” (Kroenke and Boyle 2018).
Outsourcing has many advantages, and that is why numerous companies use this strategy. The first and most important advantage is the hefty cost reduction. There are many well-educated English-speaking people across the globe (mainly in European countries, India, and China) that can and would do a job remotely for a fraction of the salary an American would do. This means a cost reduction as big as 70-80% (Kroenke and Boyle 2018).
Another great advantage is that hiring another company to do tasks for them means that all the pressure related to those tasks is lifted off the managers’ shoulders and they also win all the time it would have taken them to do those jobs, allowing them to focus on other, more important things that they actually know how to perform (Kroenke and Boyle 2018).
One more big advantage is risk reduction. Risk reduction means that when outsourcing, companies sign a contract that details a fixed price for the service performed, and also a quality guarantee. This way a company can avoid the piling up of unforeseen costs and hardships that come with trying to do something they are not experts in, which will also possibly result in something of low quality. Usually these companies agree that the full price be paid after the job is done by the outsourced organization, this ensures that the hired organization will not take the money and run away with it, never to be heard of again, and also that the service performed will be of good quality (Kroenke and Boyle 2018).
However, outsourcing is not a perfect solution. If it was, everyone would do it, and Americans would remain without jobs. Hiring an outsider company to do a job for us has its risks too. Loss of control is one of the risks. When we delegate a task to another company, we lose control over how that thing is done. The hired company will be in control and they will do their job according to their own procedures, which we cannot hover over. This also means that if the hired company gets hired to do a more important job, we might become less of a priority and the service will be slower. Another problem could be that the outsourced company maybe does not follow technological advancements the way we would, which will give competition an advantage; or that the outsourced company changes management in the meantime and the service will not be as we expect is anymore. One more risk is the other company’s employees could learn trade secrets or company secrets from us and then go to work at a competitor, thus putting our company in a very bad position (Kroenke and Boyle 2018).
Long-term costs are another risk. This means that for unforeseen reasons we need to use way more units than we thought, resulting in the cost based on units being higher than expected. Another problem could be that the hired company messes up something and evidently we would have to pay to fix that. Similarly, maybe we won’t be getting what we paid for, maybe we will get something that works a bit differently, a bit slower, with a lower quality that needs to be returned to be worked on some more, delaying everything and adding extra cost (Kroenke and Boyle 2018).
The last risk to talk about today related to outsourcing is that once we hire a company to perform a service for us, there is no easy exit out of there. We agree to share company secrets and critical knowledge that no one else ought to know with some people outside of the country. If we end up not liking a certain aspect of that company, it would not only be risky to end the contract with them (for fear that they might use the company knowledge to our disadvantage) but very expensive too, and it would, again, delay everything (Kroenke and Boyle 2018).
Outsourcing is a solution that definitely deserves thinking about. Whether that be nearshore or offshore outsourcing, if a company is expert in one thing, but not in another, many times the benefits outweigh the risks in hiring another company to do that other thing. It is not a perfect solution, though, so we have to weigh the risks and the benefits.
Kroenke, D. M., & Boyle, R. J. (2018). Using MIS (10th ed.). New York, NY: Pearson