Originally introduced in the 1990s, the concept of “outsourcing” is significant for businesses and their operational processes. Also known as “utilizing external resources,” outsourcing can be defined as the process of leasing services and business functions to a third-party, either through a contractual agreement or on a permanent basis. So, what are the benefits of outsourcing? What points should be kept in mind during the outsourcing process?
Outsourcing is a strategy aimed at enhancing efficiency within workplaces. Particularly useful for reducing costs, the “outsourcing” strategy encompasses the practice of assigning certain tasks and functions to individuals or firms outside the company. Simply put, outsourcing is when a company hires a third party to perform certain tasks. This practice has been widely accepted in the business world since 1989. With the introduction of this concept into the business realm, third-party entities providing services previously delivered by company personnel have emerged. The fundamental goal of the often-employed “outsourcing” strategy is to ensure an efficient distribution of workload for more critical matters.
What Are the Advantages of Outsourcing?
Outsourcing eases the focus of companies on other subjects, providing an important balance in terms of time and efficiency. Chosen by many companies, “outsourcing” also brings along several other advantages. The benefits companies can reap with outsourcing include:
- Outsourcing enables companies to complete their tasks at lower costs due to lower labor rates.
- It contributes to increasing in-house efficiency.
- Outsourcing offers variable business capacities.
- Companies efficiently using time can focus more on strategies and core competencies through outsourcing.
- It facilitates access to skills and resources.
- It provides more flexibility to meet changing business and commercial conditions.
- Companies preferring outsourcing shorten their time to market as the duration of work done shortens.
What Are the Disadvantages of Outsourcing?
While providing numerous advantages to companies concerning time, efficiency, and cost, outsourcing can also pose potential challenges. Depending on the sector in which the company operates, problems like low-quality products and services may arise due to outsourcing. Some potential disadvantages companies may encounter with outsourcing include:
- Business processes may slow down in outsourcing as the third-party performing the job is not in-house.
- Turnaround times in jobs done by this method can be longer than usual.
- Glitches may occur in projects carried out with outsourcing due to lack of job or field knowledge.
- Language and cultural barriers can cause agreement issues in outsourcing.
- The third party doing the job living abroad may cause time zone differences.
- Control deficiency may occur in jobs and projects carried out remotely due to outsourcing.
What to Consider When Outsourcing?
While applying the outsourcing method, which brings various advantages and disadvantages for companies, there are certain points to be careful about. Companies that heed these can easily turn outsourcing to their advantage. Here are some points to consider during outsourcing:
Outsourcing contributes to increased profitability by reducing business costs. To determine whether this method is cost-effective for your company, you need to analyze the capital required to purchase equipment and hire employees.
Pricing and Quality
Companies opting for outsourcing can offer products and services at a competitive price and reach a range of different vendors. At this point, it is beneficial to avoid simply choosing the cheapest vendor while maintaining a fine balance between pricing and quality. For this, it is necessary to compare third parties in terms of price, quality, and additional services.
Technology and Resources
It’s critically important to check the technologies and other tools that every vendor plans to use in your project to prevent possible issues. The availability of appropriate equipment and technological tools to the workers is important for the smooth running of the business process.
Another important issue to consider in outsourcing, in addition to cost, is the time factor. Deadlines missed by the third party doing the job can negatively affect cost savings.
When you’re outsourcing and working with a team, you need to make sure that the team you’re working with can respond promptly to any question or request. Especially when overseas work is involved, different time zones may come into play.
At this point, it’s important that the communication skills of the party doing the job are at a level where they can understand and meet your business requirements.