Outsourcing is when one company contracts another company to provide services/jobs, contrary to in-house employees to perform these services/jobs.

Outsourcing Benefits

• Reduced expenses -
  Outsourcing can reduce the fixed and the recurrent costs. No payments for health insurance, payroll taxes, sometimes even the equipment per employee and general employees’ administrative costs.

• Expert services -
  Access to required skills that match the company needs, outsourcing services usually will bring required experience.

• Technology availability -
  Access to the most required technology for the company without the whole costs of developing it in-house.

• Expand to another market -
  It is possible to use outsourcing services as local agent in new markets.

• Flexibility -
  In many cases that the workload of a company has ups and downs, human resources and machinery/equipment flexibility is necessary. Outsourcing can provide this flexibility when hiring the outsourcing services only when needed.

• Business focus -
  Outsourcing enables companies to stay focused on their core business services/products.

Outsourcing Disadvantages

• Less control of processes -
  Many times the outsourcing services are a black box which leads to a situation that as a company that provides the complete service/product you do not have control of all parts but you have the responsibility of the complete service/products.

• Sensitive information can leak outside -
  Outsourcing services is another link in the chain and might be a weak one, not necessarily deliberately.

• Dependency on outsourcing provider -
  The more functions that outsourcing is doing in your business the bigger dependency you have in the outsourcing provider. This dependency is a risk for your business if for some reason the outsourcing provider will decide to change the rules of the game.

• Connections with clients might be weakening -
  In case that your customer receives the service from the outsourcing, you lose the intensive direct communication with the customer and this might lead to a decline of commitment level and losing feedback from your clients.

When to Outsource

Companies can make a use of an outsourcing service as a growth engine or as a way to access technology or a way to reduce expenses and costs or a way to reduce administrative overhead in order to focus on business core.
Companies should not outsource any strategic role. All strategic roles should be held by in-house employees.

Assaf Katzir is owner and CEO of Katzir Soze Investments Ltd
Additional useful and quality information for managers, start-ups and small businesses is available at http://www.business-starter.com

Share This