Outsourcing – What are the strengths and weaknesses of outsourcing?

2019-05-17 Business No comment

Outsourcing is a common business strategy. The organization outsources functions, activities, processes and decision-making responsibilities to external providers. Outsourcing is done through contractual agreements with suppliers who bear the risks and responsibilities of the quality of business functions, personnel management, processes and services. Outsourcing helps reduce organizational management costs.

Why organize outsourcing?

Organization outsourcing so they can reduce operating costs and have more time to focus on their core business. Outsourcing allows an organization to outsource the entire function or just a part of it. For example, you can outsource payroll while retaining the rest of the accounting functions internally.

Outsourcing can be part of a strategic plan to reduce costs and improve customer service and quality. It can be used flexibly for permanent solutions or as a temporary arrangement to learn to improve technology, redesign defective products or bridge the gap.

Companies should look for outsourcing opportunities and potential areas within the organization to determine whether all or part of the functionality of the outsourcing should be considered.

Each organization is different and may have different needs for outsourced services. Some of the more common operational features that can be outsourced are:

  • Accounting
  • Customer Support
  • Facility management
  • Human Resources
  • information Technology
  • Law
  • Manufacturing
  • Marketing
  • Order completion
  • payroll

Outsourcing advantage

Core business focus

Organizations that outsource their operational functions have the ability to focus on their core business and the areas in which they excel. As organizations grow, they need to deal with business functions beyond their expertise. Leaders spend time and effort learning and managing systems or features they may not know. This distraction can reduce the focus on its core business. An example of this is the grocery store, which adds video rentals to their business. If the store is too focused on the video aspect of the operation, they may lose interest in the groceries that are their core business.

save costs

Outsourcing business functions can result in significant cost savings. Savings can be compensation costs, manufacturing settings or expenses associated with office space. These savings can free up resources that can be used for other purposes.

quality improvement

Quality can be improved by leveraging suppliers with expertise and expertise in certain functions. An example of this might be outsourcing hosting. Regulatory suppliers are often better able to conduct facility inspections, hiring and training, and if done internally, they may not be available.

Higher customer satisfaction score

Vendor agreements often ensure that certain levels of quality and service may be more difficult to manage internally. An example of this may be that if the custodian asks for illness, the supplier is responsible for finding alternatives that meet the contractual agreement.

Operational efficiency

Supplier specialization provides a higher level of efficiency, providing faster turnaround times and higher quality levels. These professional supplier processes can be more efficient because it is the core business of the supplier.

Disadvantages of outsourcing

service quality

It is important to ensure that a measurable level of quality of service is written in the supplier agreement. Vendors typically remove these measurable service levels from the agreement to save costs.

Quality risk

Outsourcing does expose organizations to certain public relations, legal and potential quality risks. An example of this is that if a car has a component failure and is recalled, and the faulty component is outsourced, the car manufacturer still bears the burden of correcting the problem. Suppliers need to correct the problem, but manufacturers need to address negative public perceptions.

language disability

Language barriers may exist when a customer call center is outsourced to a country that is not fluent in English. Customer dissatisfaction may occur when a customer service representative has a strong accent that is difficult to understand.

Public/employee opinion

For employees who have lost their current outsourcing work, there can be sympathy from the public and employees. This is very sensitive and needs to be handled with compassion and tact. Communicating these changes requires systematic development of strategies to minimize negative impacts.

Tacit knowledge

Outsourced employees do not have the same tacit knowledge and enthusiasm as organizations for ordinary employees. When outsourced employees contact customers, they may not have the same organizational knowledge base.

Organized labor issues

Organized workers have strong feelings and refuse to outsource to other countries. Pro-labor organizations oppose this management approach, which is thought to result in lower living standards and poorer working conditions. This perception affects employee productivity because it responds to corporate outsourcing.

Safety and legal compliance

Management outsourcing capabilities are needed to ensure system security and legal compliance. Processes involving security or legal compliance should be formally resolved through documentation. For example, outsourced customer support personnel may access confidential customer information that may be improperly used.

Reduce strength

Employee layoffs can be a common result of outsourcing. A well-planned outsourcing strategy will be achieved through natural attrition and job redistribution. This can be difficult, but it can help offset the morale of the remaining employees.

Organizations should have a well-thought-out strategy and plan that encapsulates the capabilities of their business. It is also important to solicit at least three Request for Proposals [RFPs] to ensure optimal use of resources.

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