Pros and Cons of Outsourcing

Outsourcing – A Balanced Perspective

For companies considering adopting outsourcing as a strategic move, one of the most important questions asked in the initial phase is: “What are the advantages and disadvantages of outsourcing? ”
As a professional service provider in the outsourcing market we aim to give a balanced perspective when asked this particular question, in order to facilitate a healthy decision making environment for our clients. To that effect, we are listing below some important positive & negative factors that can result from any outsourcing decision.

The Positives

1. Experience & Expertise
The more reputed and professional outsourcing service providers bring to the table a substantial level of experience & expertise, which certainly facilitates a smooth transition of outsourcing business activities from the client to the new service provider.

2. Improved Performance
Based on the level of experience & expertise as mentioned before, operational efficiency and effectiveness is highly optimized, resulting in significant improvement for the client in terms of sheer performance levels.

3. Superior MIS
The afore-mentioned experience & expertise and resulting improved performance can support superior Management Information Systems (MIS), resulting in regular monitoring and reporting of service delivery performance and service metrics.

4. Greater Accountability
Assuming that the outsourced services are recorded in a well-drafted Service Level Agreement, the services delivered will ensure greater performance accountability.

5. Standardization leads to Simplification
Increased standardization of processes and structures will inevitably result in process simplification and improved efficacy.

6. Highly Evolved Processes
As this is the service provider’s core competency, the client can derive benefits (in terms of process ‘best practices’) from leveraging the service provider’s experience across global clients.

7. Simplifies Staffing
The client’s internal staffing requirements are reduced, as are manpower training requirements, and the related costs. In addition, it is relatively easy to ramp-up and ramp-down resources (both in volume and in field & level of expertise) as required.

8. Cost Benefits
The cost benefits resulting from the afore-mentioned improvements and optimizations are arguably the most important driving force behind the increasing popularity of outsourcing practices.

The Negatives

1. Long-term relationship
Outsourcing contracts are generally locked in for long durations, because the positive results of outsourcing take time to materialize in practice. This makes it difficult to exit in the short-term without incurring a loss. Having a well-drafted SLA in place with a detailed description of the responsibilities, timing and implementation planning of the project, in combination with client expectation management can minimize the risk of early termination of the outsourcing contract.

2. Resource Requirements
Outsourcing is not a just-add-water kind of solution; it requires sufficient resources (both from the client’s end, and from the service provider’s end) to successfully manage an outsourcing relationship. Underestimating the resource requirements can prove to be a barrier in the functioning of the relationship. Agreeing on a detailed Implementation and Transition Plan can help mitigate this potential risk.

3. Process ownership
By abandoning direct control over the day-to-day processes, the client company’s management team effectively loses the singular ability to stimulate swift process changes. One of the ways the management team’s potential misgivings with regard to this loss of ownership can be leveraged is by clearly determining the processes and procedures and the responsibilities of all parties involved in the SLA.

For any company considering outsourcing, it is imperative to be aware of the various (dis)advantages this practice potentially entails. This awareness in combination with the company’s specific business requirements can assist the company’s management team to come to a balanced and supported decision as to whether or not outsourcing is indeed “the way to go” for the company.

For more information about our services please contact:

Mar Hernandez m.hernandez@amicorp.com