Advantages And Disadvantages Of Outsourcing

What is outsourcing?

Outsourcing is the act of allocating specific business processes to a professional external service provider. Most of the times an organization cannot handle all aspects of a business process internally. Furthermore some processes are temporary and the organization does not intend to hire internal professionals to perform the tasks. The company outsources the work to the service provider and the provider carries the responsibility of completing the task and maintaining the organization’s assets. There are advantages and disadvantages involved in this process and the companies need to understand this before outsourcing business to any third party vendor.

The most commonly outsourced areas of business are:

• IT outsourcing

Risk diversification

Advantages and Disadvantages of Outsourcing

Outsourcing is also commonly called as offshoring and has its own pros and cons. The advantages of outsourcing:

• Expertise: Most of the times tasks are outsourced to vendors who specialize in their field. These vendors possess specialized equipment and technical expertise and too often it is better than the outsourcing company. So this way the assigned tasks by the company can be performed much faster with better quality.

• Concentrating on core process rather than the supporting ones: Outsourcing process allows the company or the organization to give more time and attention to their core business processes thus in a way strengthening the company.

• Risk-sharing: This is also one of the most crucial factors resulting in the outcome of a project. Once the company outsources its components, the vendor becomes responsible. Since the vendor is mostly a specialist, he will work on risk management and plan the risk mitigating factors better.

• Reduced operational and recruitment costs: The process of outsourcing cuts the recruitment of in-house professionals and hence cuts down largely on the operational costs too. This is one of the major advantages of outsourcing

In such cases, the vendors can be less focussed or could lack complete focus while dealing with the organization’s work.

Stages in Outsourcing Industries

1. Assessment: In the first stage of outsourcing, the company carries out a detailed assessment of its sourcing needs. Then it develops a project plan, identifies a leadership team and reorganizes training resources. This stage is the most crucial and the most difficult of all stages.

2. Proposal: After the company has decided to outsource, it must identify the suppliers that can best fit for the job. To do this, the company sends out some documents to the external market which are: Request for Information (RFI), Request for Proposal (RFP) or Request for Quotes (RFQ).

3. Due Diligence: This is the phase where information gathering takes place and also evaluation about each other’s capabilities to build a concrete and a controlled relationship.

4. Contracting: This is the stage where both the company and the service provider will take a step further through a written agreement. The parties will negotiate and will sign a contract which is basically either a Master Services Agreement (MSA) or a Service Level Agreement