What is outsourcing?

Outsourcing is when a company subcontracts a service to another company. This is usually done in the interest of lowering costs. What they would do is have the supplier perform a particular service and the buyer’s concerns are the end results (as contrasted to contracting out where the company is also concerned how it’s done). This enables the company to split service and manufacturing duties so that it becomes cost-efficient.

What are the disadvantages of outsourcing?

There are always disadvantages to every good idea out there. There are companies that tend to overlook the disadvantages and outsourcing then becomes unsuccessful. These can be avoided if the company works based upon the fundamental principles of outsourcing. These should be applied from the beginning of the relationship of the buyer and the supplier. One of them is for the buyer to determine what the services encompass and the metrics. This way, the buyer is ensured that it gets what it is paying for.

This should be done even before the contract is signed. The buyer should also be in control what the services and the performance would be. If the buyer lets the supplier dictate this, then problems are sure to arise. The buyer should also be able to describe what the scope of the services will be.

This includes every single component of the service. The problem if this is not clearly defined is that the supplier might provide something that wasn’t agreed upon and would charge premium for it. In a nutshell, the buyer should be able to communicate what it needs specifically, and should be in control all the time.

This would avoid any miscommunications and therefore bad relationships with the supplier. If the supplier is from a non-English speaking country, hiring an interpreter would save you millions (even billions) in the process.

Outsourcing really is a great way to save a lot of money. As long as the fundamental principles of outsourcing are followed, then the company should have no problem with it. It really is a matter of communicating to the supplier exactly what you want. GP

The Business Process Outsourcing (BPO) industry poses many benefits for its wide variety of clients.  Primary of which is the fact that it lessens the administrative burden of any company. Instead of letting companies do all the management responsibilities in all the business processes needed, another commercial entity can do the job cheaper and efficiently.

Business process outsourcing can lessen the input expenses of its clients primarily because they often provide cheaper prices for their services as compared to the expenses posed by internal processing. Moreover, BPO saves time and effort for the company in the implementation of the little aspects of their businesses. This in turn, lets the company focus more on their core businesses operations. However, just like any other innovation, the deemed benefits also come with business process outsourcing problems.

Negative Innovation Impact

One of the most common business process outsourcing problems is the fact that BPO services can hinder innovation. Basically, some companies get their innovation ideas from their customers or in certain parts of their business operations. However, if the company will hire a BPO service provider to perform that certain business operation where some innovative ideas can be derived, the company may suffer from the lack of innovative source. As such, companies who seek BPO services should make sure that their innovation trail is not blocked by the outsourced service. If possible, they should make certain that the major aspects of their business operations are performed by company-based staff.

Strategic Inflexibility

Also included in the list of business process outsourcing problems is the possibility of strategic rigidness. This means that companies may lose their ability to develop competitive advantages primarily because they are all availing of the same business process outsourcing service. Inevitably, if the BPO service is standardized, all of the companies that are utilizing that kind of service will have the same services for its clients.

Such standardization may limit healthy competition within an industry. Moreover, this hinders a company’s ability to provide a strategic advantage for its target market share.
Decreased Efficiency in People Management

In any kind of business, the employees serve as the most important company resource. However, because of the provisions provided by the business process outsourcing industry, some companies are neglecting the needs of their employees. This is because these companies deem that the BPO service provides an alternative to their own labor resource.

As such, another prevalent issue in the list of business process outsourcing problems is the declining efficiency in human resource management. Unfortunately, many companies fail to realize that their true strength is dependent on the existing core employees.   GP

Job Losses and Unemployment

What would your employees feel if a colleague from another department gets laid off because of outsourcing? This picture has been rather prevalent among organizations resorting to offshore outsourcing. In a manner of speaking, business process outsourcing companies take away the jobs of many employees in an organization.

These job losses are especially common in the US, as many companies are now turning into outsourcing as a way of cutting their costs and speeding up their work. If these job losses are sewn together, one can say that outsourcing has in a way threatened the economic stability of countries like the US. This is especially true for white collar jobs. Before looking into outsourcing as a viable option for your company, ask yourself: will it cause massive job losses and resentment toward my organization?

Lack of Efficiency

When you outsource, you are literally letting these business process outsourcing companies take over a particular task that your organization usually performs by itself. Yes, doing so may increase organizational efficiency, but it can also backfire and cause decreased efficiency.

For instance, letting a third-party company take over a particular business function may result to a systematic failure. The employees inside the organization may resist the change that is happening. Instead of helping, they result to deliberately sabotaging the organization. This is definitely a possible problem that outsourcing can create.

Intrusion of Privacy

Once you let business process outsourcing companies work on your organization’s tasks, you will inevitably have to share to them private pieces of information. Information you will have to disclose to them may include sensitive ones. These include information on your employees’ demographics, new products, and planned services.

Because you will have to let other companies intrude in your organization’s privacy, you better make sure that you hire an outsourcing company that you can trust. Make sure that the organization is credible. Building trust with another organization may take considerable time.

Make sure you don’t readily disclose information without asking why the outsourcing company needs it for. Remember not to hand information without knowing why it is needed by the BPO company in the first place. GP