According to Bhumika (2), outsourcing has become a common practice in many of the institutions that are seeking to reduce on the costs of operations while maintaining professionalism. Arguably, this case has been driving the rush to outsource services that companies and even government institutions think that should be done by outside handlers. However, this may not be the case as outsourcing also has hidden disadvantages that are not immediately visible to the institutions. This paper addresses some of the advantages and disadvantages that are related to outsourcing.
Advantages of Outsourcing
One of the main reasons for outsourcing is the need to save on costs. According to Bucki (1), outsourced functions cost less than if they were done in-house. Outsourcing has the advantage of ensuring that professionals who are committed to delivery of quality work are in control of the work, especially considering that if they fail they may be denied the contract to handle jobs. Bucki (1) further observes that outsourcing can be credited with the quality services that institutions such as customer care centers, libraries, and cleaning services have become thorough nowadays. Similarly, the bidding and contractual form in which many of the outsourced companies ensure that the institution that is outsourcing gets the best deal as competition is high among the service providers. Furthermore, outsourcing has the potential of reducing fixed costs on assets into variable costs through leasing and contractual agreements from the outsourcers.
Meyer (2) notes that outsourcing has enabled the opening of job opportunities to many non-professional jobs, which might necessarily require a strong educational background even though the work is handled professionally. For instance, cleaning of offices does not require one to have a strong academic background but they can handle this job well after an initial training by their company. Additionally, Meyer (2) further notes that outsourcing can bring in original ideas for improvement in the main and non-main services of an organization.
A popular trend of outsourcing is the turnover of the cost of outsourcing a certain service over that cost of insourcing the same source. For instance, many libraries found that they could save a lot of money if they outsourced services such as shelving and weeding of the library stock rather than employing a librarian to do this kind of work daily.
Similarly, Schniederjans (21) note that outsourcing enables institutions to focus on their core functions rather than being disrupted by functions that do not directly contribute to the core business of the institution. For instance, a core business of a manufacturing company is not to make tea for its staff even though tea motivates the staff to work harder. Outsourcing this service will enable the company to focus on the main function.
Additionally, Wijers and Verhoef (15) observe that most of the works that are outsourced are in the area of technology. Initial purchase of technology tools and software can be very expensive. Thus, institutions have found a way of tapping into technology by outsourcing the functions that require technology to the firms that are already established in that technology. As such, the companies that outsource such services get to enjoy from the already concentrated technological expertise using outside firms.
Disadvantages of Outsourcing
Blecker, Kersten, and Herstatt (1) observe that outsourcing may lead to the loss of control over a function in an institution. If this happens, costs are likely to increase because the managers cannot exert control on the operation costs of the external firm. Loopholes in contractual agreement for outsourcing source may allow the client to purchase material for the third party, thus, leaving the client at the risk of facing escalation charges in material costs
Additionally, outsourcing can demoralize employees and lead to restructuring of the institution that may result from dislocation and social costs for employees who may be retrenched or forced to work for the outsource provider. Outsourcing has been known to course disruptions in operations during transition stages and this may negatively influence the customer base, some of whom have permanently shifted to other competitors. This results in the loss of market.
Wijers and Verhoef (15) argue that outsourcing places security concern over the confidentiality of the information that an institution may be handling. For instance, if an institution, like an investigation department, decides to outsource document management services, the security and confidentiality of such information becomes questionable as a third party has access to it.
Similarly, outsourcing has led to massive loss of jobs to many people and this impacts negatively on the economy because most of those jobs are outsourced outside and this denies the government taxes. Outsourcing to international companies have led to customer dissatisfaction as there is evident collision in cultural and traditional differences, especially in call centers, which, thus, impacts negatively on the morale of the customer.
Additionally, Wijers and Verhoef (15) note that outsourcing weakens the innovative capacity of the institution that is outsourcing as it can no longer participate in innovative ideas but rather remain stagnated in traditional practices. Other disadvantages include the risk of failure by the firm that is given outsourced responsibility that can easily bring the institution down.
In conclusion, outsourcing has both the advantages and disadvantages, and understanding them will go a long way in assisting any management to make intelligent decisions before outsourcing any function. Similarly, governments and other employees need to evaluate the risks involved in outsourcing before handing over any function to any other firm. This will go a long way in alleviating the negative economic impacts that are caused by outsourcing of services.