In today’s global economy, it is increasingly difficult for any company to have all the resources they need in-house. As per the latest technology consulting study, the global outsourcing market will be worth around $397.6 billion with a CAGR of 5% by the end of 2025. There are around 80% of companies that have started outsourcing their business after the covid 19 pandemic. With outsourcing, you can save cost, access an efficient workforce when your business needs additional help in a specific project or task.
But, at the same time, outsourcing has both pros and cons that must be considered before deciding whether or not to trust this strategy for your company. This blog will discuss the benefits of choosing IT outsourcing services plus the risks involved with it. So, let’s get started.
Pros of Outsourcing
1. Increase Company Profits
Outsourcing can be an excellent way for businesses to increase their profits. It is ideal if you have the right resources and expertise in-house but need additional help with your project or tasks. By choosing this strategy rather than hiring new employees, companies save money by not paying benefits such as health care, paid leave, and retirement plans.
It is important to note that outsourcing results in a lower cost per unit, so it’s advantageous for companies with smaller budgets or those who are just starting.
Companies also benefit from an outsourced workforce because they can focus on their core business activities while getting their needed help. For example, a business that sells and distributes products may want to use an outsourcing company for manufacturing rather than building this department in-house.
This arrangement allows the distribution company to save money on labor costs, which could be used instead for advertising or marketing strategies. In addition, they can benefit from using the flexibility of outsourced employees by having them work on projects only when the company needs their assistance.
2. Increase Economic Efficiency
Outsourcing can help to increase economic efficiency. When a business outsources, it can use resources and expertise that may not be available in-house while also focusing on its core competencies/strengths.
This strategy helps companies avoid getting stuck when specific needs don’t meet due to a lack of resources or continuity. In addition, outsourcing allows companies to bring in new ideas from the outside without long-term commitment.
For example, if your company decided to hire an accounting firm on a project basis only when taxes are due rather than having them work full-time in-house doing this job all year round. You would be able to use their expertise and knowledge during tax season without having them sit around the rest of the year doing nothing.
In this case, you will not only save money by avoiding paying benefits but also eliminate any downtime for your employees because they won’t have to be training someone new every time taxes are due.
3. Strengthen International Ties
Today more and more countries continue to develop their economies, the world has become increasingly interconnected in trade and global business practices. It is partly due to low-cost labor, allowing developed countries to outsource work for products or services that can be too costly if produced domestically.
For example, if you are an American business that wants to develop a new product but doesn’t have the engineering or manufacturing capabilities in-house, outsourcing these areas can make sense because it will allow your company to focus on what they do best (i.e., marketing) while still having access to better resources and expertise than may be available domestically.
In addition, outsourcing allows companies to tap into a new pool of potential employees and develop relationships with other businesses, leading to increased opportunities for trade or cross-promotion down the road. That’s why many companies find that outsourcing is the best way to stay competitive in this new world economy.
4. Greater Competitive Advantage
Outsourcing can give a business a more significant competitive advantage in the marketplace. It allows companies to access expertise and competencies that they might not have within their existing workforce or are too expensive if bought in-house.
For example, when Pixar outsourced its animation work for movies like Toy Story to other countries such as South Korea, the quality of their products increased while costs decreased. As a result, Pixar released higher-quality films at lower prices, resulting in a more significant market share and profits over time.
In addition, outsourcing can help companies increase efficiency by avoiding having employees do jobs that are not part of their core competencies or simply wasting time because they are not working on the right tasks.
5. Improved Focus on Core Business Activities
Another benefit to outsourcing is that it can allow a company to focus more on its core business activities and eliminate tasks that may not be necessary. It will enable companies to avoid having employees do things like updating spreadsheets or paperwork when they should focus on selling products, which ultimately improves the bottom line by freeing up cash for other uses.
For example, if your company provides web design services to local companies. In that case, it also has 50 administrative employees who spend a good deal of their time filing paperwork and updating spreadsheets for clients rather than working on website updates. By outsourcing these tasks which do not directly contribute to generating revenue for your firm, you will be able to increase the efficiency of your employees and spend more time focusing on things like client outreach.
Cons of Outsourcing
1. Service Delivery
One of the most significant risks involved with outsourcing is that you may not get exactly what you want because it might require too much work, money, or resources.
For example, many companies outsource their phone systems to other countries like India, where they can buy services at a lower rate than domestically. There are times when callers transfer calls from one representative to another, leading to confusion and wasted time.
Outsourcing can be also challenging to manage because companies are often required to work with more than one agency to get the best service possible. As a result, it is essential for businesses that use an outside contractor or team of contractors to establish clear communication guidelines and expectations from the beginning.
2. Confidentiality & Security
Another potential downside of outsourcing is that some companies are reluctant to give up confidential information for fear that someone may leak it or mishandle it.
For example, suppose your company outsources its payroll services to an outside agency. In that case, you might not feel comfortable sharing the salaries and wages of employees because this type of sensitive information could put them at risk if it falls into the wrong hands.
However, this is not always an insurmountable problem because many companies will sign non-disclosure agreements with service providers to ensure their confidential information remains protected at all times.
3. Lack of Flexibility
Another potential downside of outsourcing is a lack of flexibility. Companies are often locked into contracts with service providers and may not make changes until the next time their contract renews.
For example, if your company outsources its accounting services or bookkeeping tasks but then decides it needs extra help during tax season, you might not have the option of hiring additional employees to handle the increased workload.
In these cases, it may be vital to renegotiate your contract with a service provider so you can bring on temporary help or hire someone full-time, which should only take a few days once all parties have agreed.
However, this is not always easy because many companies are hesitant to give up a steady stream of income from outsourced services and may need you to pay additional fees before making any changes or signing a new contract.
4. Management Difficulties & Instability
Another potential downside of outsourcing is that it can be challenging to manage and monitor the quality of service your company receives.
For example, suppose you outsource your customer support services but find the workers have not done training adequately or do not know your product line. In that case, it will be more challenging for you to correct any problems because all communication has to go through the service provider.
However, this is not always an insurmountable problem because you can take steps to strengthen your relationship with your outside contractor by offering incentives like bonuses and other rewards for meeting or exceeding customer expectations.
Conclusion
Outsourcing pros and cons have been around for many years now. Still, the good news is that it has helped countless businesses across North America bring in more revenue, increase their bottom line and hire additional employees.
That’s why it is essential to understand the various types of outsourcing before deciding whether or not this approach makes sense for your company.
FAQs:
Q- What are some examples of outsourced services?
Ans: Some common examples include payroll, accounting, bookkeeping, and customer support/help desk solutions like live chat software and social media management.
Q- What are the most popular types of outsourcing services?
Ans: By far, IT and software development projects tend to be two of the most common outsourced jobs because they require highly skilled professionals who command a higher salary than less-experienced workers.
Additionally, these tasks can take so much time that some companies decide hiring outside help is easier than training their employees.
Q- What’s the difference between managed and unmanaged IT outsourcing?
Ans: Managed services refer to a situation where you sign a contract with an external company that will handle all or most of your technology needs for setting monthly fees, whereas, in the case of unmanaged services, you are responsible for maintaining your own IT infrastructure.
Q- What is the average cost of outsourcing?
Ans: The amount varies depending on what type of work needs to be done and how many hours a week or month your project requires, but prices tend to range from $20-$80 per hour, with some positions requiring more or less experience than others.
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