Business

Outsourcing: The good, the bad, and the ugly


The competition experienced in the global market has tuned up brands to do everything possible to come up with products and services of sterling qualities. To this end, a lot of brands resort to outsourcing in order to fill up gaps that will enhance their competitive advantage.

Outsourcing is all about brands hiring sources from outside the company to perform services or create products which ordinarily should have been done in-house by employees and staff of the company. Outsourcing was first recognized as a business strategy in 1989 and became an integral part of business economics throughout the 1990s.

In the business world, outsourcing is subject to considerable controversy. A group, especially in the manufacturing sector argues that it has caused the loss of domestic jobs. Supporters say it creates an incentive for businesses and companies to allocate resources where they are most effective, and that outsourcing helps maintain the nature of free market economies on a global scale.

The good

There are a whole lot of reasons why you may decide to embark on outsourcing some certain tasks in your company. It can help you to reduce labor costs significantly by avoiding expenses associated with overhead.

You also have the advantage of saving whopping amount of financial resources in the area of installation of some very necessary and highly expensive equipment. In this era of IOT and data science, your brand can only be relevant by investing heavily on technology and that can be taken care of by outsourcing.

In addition to cost savings, you can employ an outsourcing strategy to better focus on core aspects of your business. When you outsource non-core activities of your business, you are bound to improve efficiency and productivity.

A third party will not regard “those smaller tasks” which may cost you a great deal in quality as negligible, which is the way you and your employees may most likely see them. Perfecting the smaller tasks may be the lifeline of this third party and hence, the concerted effort to perform it qualitatively.

This strategy may also lead to faster turnaround times, increased competitiveness within an industry, and the cutting of overall operational costs, knowing fully well that your customer satisfaction comes down to three factors: Quality, Cost, and Delivery (QCD).

On the international scale, you can also outsource tasks in order to benefit from the differences in labor and production costs among countries. You can catch in on the price dispersion in another country as an enticement to relocate some or all of your operations to the cheaper country in order to increase profitability and stay competitive within the industry.

The bad

Knowing fully well that outsourcing involves handing over the direct control you have been exercising over a business function or process to a third party, you should be prepared for certain shortcomings as the strategy is risk prone. For example, when outsourcing, you may experience problems with signing contracts with other companies.

Contracts may take time to draw up which will translate to putting in extra effort from your legal team.They could also prove too rigid to accommodate change, leaving you at the complete mercy of the contractor.

A lack of communication between your company and the outsource provider may occur, which could delay the completion of projects leading to delays in delivery or even products that are below the expected standards.

There is always the possibility of managerial changes occurring at the outsourcing company thereby causing friction as well as the case of them going out of business, all which will not augur well for your brand.

The ugly

The worst scenario is your company being run out of business. This may sound incredulous but it’s very possible. You need to imagine a situation where your outsource provider sells off information regarding your brand to a competitor.

It’s simply taking you to the slaughter house. Another case in point is where information about your brand unwittingly falls into the hands of cyber criminals, they are ready and willing to hack you to death.

Possibly unlike you, the outsource provider may not have enough resources to guard against attacks and it’s no hidden fact that hackers are innovating on a daily basis to counter measures put in place by corporations to ward off attacks.

Inasmuch as outsourcing is a business strategy that enhances cost-cutting measures and the principle of lean manufacturing, you need to be wary of the type of company you outsource tasks to. It’s absolutely necessary you do a comprehensive research before signing any contract.

Cyber Criminals only need the smallest opening to get access into your company and a slip from an outsourcing company could be the opportunity they have been waiting for to launch attacks.

Photo Credit: Nearsoft Flickr via Compfight cc

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About John Ejiofor

John Ejiofor is a curious life-researcher, whose quest to finding answers to life's pertinent questions has led to founding Nature Torch. This blog aims to debate and explore many questions about our earth -- including those a lot of people are uncomfortable with asking. He has been published on some of the internet's most respected websites, which you can find online.
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