Outsourcing can also become a vendor to perform a service for an organization that the organization would otherwise have had to perform in-house.
Outsourcing is a growing trend in the business arena, due to its many benefits. Here are some pros and cons of outsourcing an organization should consider when making the decision to outsource.
Advantages of Outsourcing
By outsourcing its non-critical business functions, an organization can focus on its core competencies. This also ensures that there are more resources available for developing and enhancing its core competencies. Similarly, managers and employees will have more time to focus on the core activities of the business.
Examples of non-critical business functions that an organization may outsource to an outside business include office cleaning in Sydney ,payroll management, technical support, logistics and accounting.
Another reason why firms would prefer to outsource these non-critical functions is due to cost reasons; in other words, it is cheaper for the organization to outsource this function than to conduct it in-house. The reason for this is because outsourcing firms specialize in the service that they provide and are therefore able to provide this service at a lower cost due to this specialization and due to economies of scale.
Outsourcing means that the organization will require less staff, which consequently reduces recruitment, compensation and other associated costs.
The resulting reduction in cost due to outsourcing would mean an increase in the profitability of the organization.
Outsourcing firms are also privy to the knowledge of the latest techniques with respect to their field of expertise. Thus, by obtaining their services, an organization is able to benefit from this expert knowledge which the organization would otherwise have not had access to.
Disadvantages of Outsourcing
Problems can arise if an organization decides to outsource the wrong function/s; functions that represent core competencies, for instance, should not be outsourced as this would impair the competitive advantage of the organization. In outsourcing their core competencies, the organization not only erodes the uniqueness of their product or service but also makes themselves vulnerable to having sensitive proprietary information stolen by competitors.
Other sensitive information of the organization (those unrelated to their core competencies) may also be placed at risk due to outsourcing. For example, a business outsourcing its payroll function has to provide the outsourcing firm with sensitive employee details and thus runs the risk of these details being leaked.
Hidden costs in outsourcing contracts may reduce the cost benefit associated with outsourcing.
There may be issues when it comes to enforcing contract compliance and the organization may face problems if the outsourcing firm provides sub-standard services and output.