Outsourcing: Advantages and Disadvantages | Indeed.com

Advantages of outsourcing · Lower labor costs · Larger talent pool · Internal staff development · Increased efficiency. FindjobsCompanyreviewsFindsalariesUploadyourresumeSigninSigninEmployers/PostJobStartofmaincontent CareerGuideCoronavirusJobResourcesFindingaJobMoreResumes&CoverLettersInterviewingStartingaNewJobResumeSamplesPay&SalaryCareerDevelopmentCareerPathsCoverLetterSamplesCoronavirusJobResourcesFindingaJobResumes&CoverLettersInterviewingStartingaNewJobMoreResumeSamplesPay&SalaryCareerDevelopmentCareerPathsCoverLetterSamplesCareerDevelopmentOutsourcing:AdvantagesandDisadvantagesOutsourcing:AdvantagesandDisadvantagesByIndeedEditorialTeamNovember17,2021TwitterLinkedInFacebookEmailCopytoClipboardManybusinessesseektomaximizetheirprofitsbylimitinghowmuchtheyspendonoverheadcosts.Onewaytoloweroverheadisbyoutsourcingcertainbusinessfunctions.Companiescontractwiththird-partyentitiesforcertainduties,freeingupthecompanytofocusonitscorebusinesses.Inthisarticle,weexplainwhatoutsourcingis,itsadvantagesanddisadvantagesandhowtodetermineifoutsourcingwouldbenefityourbusiness.Related:GuidetoOverheadKeytakeawaysCompanieshireoutsidecompaniestoperformspecifictasksasawaytoreduceoperatingcostssuchassalaries,overhead,equipmentandtechnology.Thisisknownasoutsourcing.Outsourcingallowsacompanytofocusonitscoreaspectsbydelegatinglesscriticalfunctionstothethird-partyoutsideorganization.Insourcingbringsnewemployeesintothecompanyratherthanfarmingouttaskstothird-partycompanies. Whatisoutsourcing?Outsourcingistheprocessofcontractingoutsidebusinesstoperformspecializedworkoperations.Companiesthatuseoutsourcingcanemployathird-partycompanytohelpperformstandardcompanyoperationslikeproducinginventoryorcompletingservicesonthecompany'sbehalf.Itcouldbeanoccasiontask,suchaspreparingtaxesonceayear,oraroutinepartofbusinessoperationssuchaspreparingandmaintainingsocialmedia.Somebusinessprocessesandfunctionsthatcompaniesmayoutsourceinclude:AccountingCustomersupportHumanresources(HR)managementManufacturingContentwritingResearchShippingandlogisticsEngineeringDiagnosticservicesAdministrativetasksInformationtechnology(IT)operationsRelated:OperationalOutsourcing:DefinitionandBenefitsAdvantagesofoutsourcingThereareseveralbenefitsofoutsourcingincluding:LowerlaborcostsYoucanloweryourbusiness'slaborcostsbyoutsourcingspecificfunctionstoothercompanies.Thethird-partyorganizationhirestheemployeestoperformthetasksandisresponsiblefortheirpay,benefitpackagesandtraining.Thisallowsyourcompanytofocusitslaborcostsonyourcorestaff.Outsourcingcanalsoloweryourequipmentcosts.Itcanbemorecost-effectivetohireathirdpartyratherthanbuynewequipment,relocateorchangeprocesses.Related:WhatIsLaborCost?Definition,Directvs.IndirectCostsandExamplesLargertalentpoolWhenyououtsourcetospecializedcompanies,youcantakeadvantageofalargertalentpool.Thesecompanieshaveaccesstocandidatesinotherpartsofthecountryortheworlddependingonwheretheyarelocatedandhowmanyoftheirpositionsareremote.Thecontractingcompanywillalsohaveitsownrecruiterstofindthebestcandidatesforthetasks.InternalstaffdevelopmentAlargeprojectmayrequireskillsthatyourstaffdoesnotcurrentlypossess.On-siteoutsourcing,whereyoubringincontractorstooperateatyourownlocation,canletyouremployeesworkbesidetalentedcontractorsandacquirenewskillsets.Related:Insourcingvs.Outsourcing:DefinitionsandDifferencesIncreasedefficiencyOutsourcingallowsyoutomoveextraneousfunctionstomorespecializedsources.Shiftingthosefunctionstocompaniesthatspecializeinthosetaskscanleadtogreaterproductivity,efficiencyandcost-effectiveness.Yourcompanycanincreaseefficiencybyconcentratingonhiring,training,facilitiesandotherresourceswithinyourcorebusinessmodel.Outsourcingallowsyoutonarrowbudgetcoststospecificreportsandinvoicesrequestedfromthecontractorratherthanbudgetinganin-housedepartmenttodothesamething.DisadvantagesofoutsourcingThereareseveralpotentialdisadvantagesofoutsourcingincluding:LimitedcontrolandflexibilityWhenyououtsourcetaskstoanothercompany,youmaybelimitedbyrigidcontractagreements.Youmayhavelesscontroloversoftware,proceduresandprotocols,hiringpracticesandscheduling.Outsourcingcanalsolimithowmuchflexibilityyourbusinesshastomaneuverasyourcompanygrowsorchangesarise.Youmayalsohavelesscontroloverthird-partycontractedemployeesworkingoff-site.DeclineinemployeemoraleOutsourcingmayaffectyourcompanyculture,especiallyemployeemorale.Ifyouremployeesdon’tunderstandtheneedforoutsourcing,theymayfeeltheyarebeingreplaced.Otheremployeesmaybecomefrustratedasworkflowsbecomemorecomplicated,especiallyifthecontractedcompanyisinadifferenttimezone.Related:HowtoBoostEmployeeMoraleDecreasedsecurityOutsourcingcanmakedatasecuritymorecomplicated.Outsourcingusuallyinvolvesmultiplesitesusingtechnologytoconnectandshareinformationwhichcanleadtomoreopportunitiesfordataleaks.Yourbusinesswillalsohavelesscontroloverhiringandemployeeprotocols,limitingyourcontrolovertheinformationthoseemployeeshaveaboutyourcompany.HowtodetermineifoutsourcingisrightforyourbusinessHereishowtodetermineifoutsourcingisagoodfitforyourbusiness:1.Determineyourcompany'scorefunctionsYoucanstartthedecision-makingprocessbyoutliningwhatproductsandservicesyourcompanyspecializesin.It’simportanttofirstanalyzeyourcompany'soperationstounderstandwhichpartsofyourcompanyneedimprovedefficiency.Thiscanhelpyoudecidewhatbusinessfunctionscouldbeoutsourcedtohelpnarrowyourfocusandloweryouroverallcosts.2.CalculatedepartmentcostsManycompanieschoosetooutsourcetosavemoney.Todothis,determinehowsmoothlyeachdepartmentruns,howmuchincomeeachdepartmentgeneratesandtheemployeeturnoverratewithineachpositionofadepartment.Onceyoudeterminewhichdepartmentsarenotrelatedtoyourcorefunctions,youcancompareyourbudgetsandactualcosts.Thiscanprovideaguidefordeterminingwhichdepartmentsmaybeimpactingyourprofitsandwhatcanbeoutsourced.Related:WhatIsaCostCenter?Definition,FunctionandExamples3.ResearchcompaniesOnceyoudeterminewhichdepartmentsandfunctionsmaybenefitfromoutsourcing,youshouldresearchcompaniesthatspecializeinthosetaskstodeterminehowmuchtheychargeandwhatservicestheyoffer.Youshouldalsogetdetailsontheirhiringpractices,securitypoliciesandcontractterms,especiallyregardingwhathappensiftheydon'tmeetquotas.Youcanalsoreachouttoyournetworkandothercompaniesinyourindustryforrecommendationsandreviews.4.PrioritizeyourneedsYoucanusethatresearchtonarrowthelisttotherightcompaniesforyourbusiness.Forexample,ifyouarelookingatoutsourcingcustomersupport,youmightconsider:WhathoursyouwouldlikethecontractoravailableHowyoupreferyourcustomerstoreachthesupportstaffHowmuchvolumeyouexpectthecompanytomanageforyouHowoftenyouwantthemtoreportquotas,qualityassuranceandotherdatatoyourbusinessWhatsecurityprotocolsyouexpectandifyouneedfinancialinformationencryptiontoprotectyourcustomers'creditcardnumbersorbankaccountsYoucanusethisanalysistodecidehowmuchmoneyyoucanexpecttospendtooutsourcethebusinessprocess.Ifyoudecidenottooutsource,youcanalsousethisinformationtodeterminehowtostreamlinethedepartmentandfocusitsfunctionsandemployeestobemoreefficientandproductive.5.DeterminehowoutsourcingmayaffectyouremployeesOutsourcingmaybeaprimarilyfinancialdecision,butyoushouldconsiderhowitmayaffectemployeemorale.Youcandeterminehowemployeesmightrespondbyusingsurveysandinterviews.Manyemployeesfeelmorecomfortableaboutatransitiontooutsourcingiftheircompanyistransparentabouttheprocessandtheirreasons.Youmayalsowanttoconsiderwhatseverancepackagesorreassignmentsyouwillofferemployeeswhomaylosetheirroleinoutsourcing.6.TakeabroadviewOnceyouhavecompiledthefinancialdataonthebusinessfunction,projectedoutsourcingcostsandpotentialimpactsonyourcompanyculture,youcandetermineifoutsourcingisrightforyourcompany.Youcanalsohireconsultantstohelpyoudetermineifoutsourcingisagoodideaforyourbusinessandhowtomakethetransitionassmoothaspossible.Readmore:HowToCreateanOutsourcingStrategyBrowsemorearticlesWhatIsITProjectManagement?(WithBenefitsandTips)WhatIsOrganicContent?(PlusBenefits,QualitiesandTips)WhatIsanNSFCertification?(AndHowToEarnOne)FAQ:WhatIsNeuromarketingandWhatIsItUsedFor?WhatIsScrum?ADefinitiveGuideBenefitsofaWork-From-HomeDressCode(WithTips)WhatIsaTurnkeyBusiness?(WithProsandCons)WhatIsRightsourcingandWhyIsItImportantforCompanies?WhatIsaPre-collegeProgram?ADefinitiveGuideWhatIsUTMTracking?(PlusHowToSetUpTrackingin4Steps)WhatIsaWebCrawler?:HowTheyWorkandHowTheyAffectSEOWhatIsTreasuryManagement?(WithDefinitionandBenefits)