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So, what is outsourcing? Outsourcing is contracting with another Prin
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Some nimble companies that are short on time and money, such as start- om
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speed up the time to launch. They hire a multitude of outsourcing service providers to handle almost allcau m
aspects of a new project, from product design, to software coding, to testing, to localization, and even sing to
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The process of outsourcing generally encompasses four stages: 1) strategic thinking, to develop the es
organization's philosophy about the role of outsourcing in its activities; 2) evaluation and selection, to in
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decide on the appropriate outsourcing projects and potential locations for the work to be done and service om
providers to do it; 3) contract development, to work out the legal, pricing and service level agreement er
(SLA) terms; and 4) outsourcing management or governance, to refine the ongoing working relationship serv
between the client and outsourcing service providers. ice?
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In all cases, outsourcing success depends on three factors: executive-level support in the client
organization for the outsourcing mission; ample communication to affected employees; and the client'sCon
ability to manage its service providers. The outsourcing professionals in charge of the work on both thetrib
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client and provider sides need a combination of skills in such areas as negotiation, communication, to
project management, the ability to understand the terms and conditions of the contracts and service level
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agreements (SLAs), and, above all, the willingness to be flexible as business needs change. Disc
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The challenges of outsourcing become especially acute when the work is being done in a different on
country (offshored), since that involves language, cultural and time zone differences.
As you evaluate your choices and decisions in outsourcing different components of your
operations, you will need to consider the advantages of outsourcing. When done for the right
reasons, outsourcing will actually help your company grow and save money. There are other
advantages of outsourcing that go beyond money. Here are the top seven advantages of
outsourcing.

1. Focus On Core Activities

In rapid growth periods, the back-office operations of a company will expand also. This
expansion may start to consume resources (human and financial) at the expense of the core
activities that have made your company successful. Outsourcing those activities will allow
refocusing on those business activities that are important without sacrificing quality or service in
the back-office.
Example: A company lands a large contract that will significantly increase the volume of
purchasing in a very short period of time; Outsource purchasing.
2. Cost And Efficiency Savings
Back-office functions that are complicated in nature, but the size of your company is preventing
you from performing it at a consistent and reasonable cost, is another advantage of outsourcing.
Example: A small doctor’s office that wants to accept a variety of insurance plans. One part-time
person could not keep up with all the different providers and rules. Outsource to a firm
specializing in medical billing.
3. Reduced Overhead
Overhead costs of performing a particular back-office function are extremely high. Consider
outsourcing those functions which can be moved easily.
Example: Growth has resulted in an increased need for office space. The current location is very
expensive and there is no room to expand. Outsource some simple operations in order to reduce
the need for office space. For example, outbound telemarketing or data entry.
4. Operational Control
Operations whose costs are running out of control must be considered for outsourcing.
Departments that may have evolved over time into uncontrolled and poorly managed areas are
prime motivators for outsourcing. In addition, an outsourcing company can bring better
management skills to your company than what would otherwise be available.
Example: An information technology department that has too many projects, not enough people
and a budget that far exceeds their contribution to the organization. A contracted outsourcing
agreement will force management to prioritize their requests and bring control back to that area.
5. Staffing Flexibility
Outsourcing will allow operations that have seasonal or cyclical demands to bring in additional
resources when you need them and release them when you’re done.
Example: An accounting department that is short-handed during tax season and auditing periods.
Outsourcing these functions can provide the additional resources for a fixed period of time at a
consistent cost.
6. Continuity & Risk Management
Periods of high employee turnover will add uncertainty and inconsistency to the operations.
Outsourcing will provided a level of continuity to the company while reducing the risk that a
substandard level of operation would bring to the company.
Example: The human resource manager is on an extended medical leave and the two
administrative assistants leave for new jobs in a very short period of time. Outsourcing the
human resource function would reduce the risk and allow the company to keep operating.
7. Develop Internal Staff
A large project needs to be undertaken that requires skills that your staff does not possess. On-
site outsourcing of the project will bring people with the skills you need into your company.
Your people can work alongside of them to acquire the new skill set.
Example: A company needs to embark on a replacement/upgrade project on a variety of custom
built equipment. Your engineers do not have the skills required to design new and upgraded
equipment. Outsourcing this project and requiring the outsourced engineers to work on-site will
allow your engineers to acquire a new skill set.

The Advantages of Outsourcing

• Outsourcing your non-core activities will give you more time to concentrate
on your core business processes
• Offshoring can give you access to professional, expert and high-quality
services
• With outsourcing your organization can experience increased efficiency and
productivity in non-core business processes
• Outsourcing can help you streamline your business operations
• Offshore outsourcing can help you save on time, effort, manpower, operating
costs and training costs amongst others
• Outsourcing can make your organization more flexible to change
• You can experience an increased control of your business with outsourcing
• Your organization can save on investing in the latest technology, software
and infrastructure as your outsourcing partner would be investing in these
• Outsourcing can give you assurance that your business processes are being
carried out efficiently, proficiently and within a fast turnaround time
• Offshoring can help your organization save on capital expenditures
• By outsourcing, your company can save on management problems as your
offshore partner will be managing the team who does your work
• By outsourcing, you can cater to the new and challenging demands of your
customers
• Outsourcing can help your organization to free up its cash flow
• Sharing your business risks is possible with outsourcing
• Outsourcing can give your business a competitive advantage as you will be
able to increase productivity in all the areas of your business
• Outsourcing can help your organization to cut is operational costs to more
than half
If you want your organization to stay ahead of competition, concentrate on core competencies
and make use of the latest technologies, then outsourcing can help your organization achieve all
this and more. In outsourcing, the advantages of outsourcing are more than the disadvantages of
outsourcing. The pros of outsourcing have driven more organization to step into offshoring and
experience the benefits that it has to offer.

The Disadvantages of Outsourcing

• At times, it is more cost-effective to conduct a particular business process,
rather than outsourcing it
• While outsourcing services such as payroll processing services and tax
preparation services, your outsourcing provider will be able to see your
company’s confidential information and hence there is a threat to security
and confidentiality in outsourcing
• When you begin to outsource your business processes, you might find it
difficult to manage the offshore provider when compared to managing
processes within your organization
• Offshoring can create potential redundancies for your organization
• In case, your offshore service provider becomes bankrupt or goes out of
business, your organization will have to immediately move your business
processes in-house or find another outsourcing provider
• The employees in your organization might not like the idea of you
outsourcing your processes and they might express lack of interest or lack of
quality at work
• Your outsourcing provider might not be only providing services for your
organization. Since your provider might be catering to the needs of several
companies, there might be not be complete devotion to you and your
company
• By outsourcing, you might forget to cater to the needs of your valuable
customers as your focus will be on the business process that is outsourced
• In outsourcing, you may lose your control over the process that is outsourced
• Outsourcing, though cost-effective, might have hidden costs, such as the
legal costs incurred while signing a contract between companies. You might
also have to spend a lot of time and effort in getting the contract signed
• With outsourcing, your organization might suffer from a lack of customer
focus
• There can be several disadvantages in outsourcing, such as, renewing
contracts, misunderstanding of the contract, lack of communication, poor
quality and delayed services amongst others.
The disadvantages of offshoring give organizations an opportunity to think about what they are
stepping into. However the disadvantages of outsourcing are less than the advantages of offshore
outsourcing. When outsourcing, you might not experience any of these disadvantages of
offshoring, if you find a reliable outsourcing partner. Before outsourcing take the interests of
your customers and employees into consideration and then make an informed decision. If your
organization is genuinely interested in outsourcing, let not the disadvantages of outsourcing stop
you.