Calibrating The Reasons, Risks And Rewards Of Outsourcing

It all seems like a piece of cake. With the number of companies relying heavily on outsourcing, it is logical to presume that it is beneficial to everybody. It is, however important to seriously weigh in the importance and benefits alongside the risks involved with the process before indulging in it.

If the industry experts from global sources are to be believed, then small business owners have nothing to worry about with the business model of sending processes to offshore locations. They seem to paint a picture of bliss, a picture of ease, running an entire business without a single employee. Is the picture fact or fiction?

This article will explore the deeper questions and ramifications of choosing the offshoring business process especially in relation to the IT industry.

Why choose outsourcing?

The Outsourcing Institute’s Outsourcing Index 2000 lists numerous reasons why the process is so favored across industries. The important reasons and the ones that apply to the most number of industries is listed below.

  • Cost cutting measure – As attested by various experts, the business model does indeed save a lot of cash in the bank. The costs of hiring and training an employee, management oversight, health insurance, retirement funds and employment taxes are all moot.
  • Streamlined focus – A major benefit of letting another organization handle specific tasks is the reduced stress and more time available that can be spent on furthering the business. The model allows the business owners to become the masters of their trade.
  • Access to skilled labor – It might not be technically possible to hire specialists for every minute task. The return on the same investment is guaranteed to be greater with outsourcing as the technology firm probably specializes in the particular area. The experience of an entire team of specialists is now backing the same process.
  • Using internal resources – If outsourcing was not an option, then most of the tasks would be completed by non-specialists, taking longer and in lieu of the work that they were hired to do. On the other hand, if nobody in the company is equipped to handle the tasks and hiring a new specialist is not viable then outsourcing is the best avenue.
  • Restructuring benefits – Restructuring is a part of any company’s drive to succeed. When trying to cut costs and improvise productivity, non-core functions often get pushed to the corner. The best way to get all the functions done on time is to use a provider who specializes in those functions.
  • Supervision – While outsourcing to experts means that the tasks will get done efficiently, a certain amount of supervision is definitely essential.
  • Freeing capital funds – Capital funds can now be used to further the business through spending that shows directly in the product and is immediately visible to the consumer.
  • Risk reduction – With service providers, one major advantage is the fact that in order to run their business they will keep up with the latest in technology and advancements. Decisions made in tandem with them therefore will have a reduced risk factor given their experience in managing several clients for the same task.

Is it the right decision?

Outsourcing is definitely an invitation to an outsider to partake in a portion of your business. Various doubts about the partner, the timeline and the mere ability to complete tasks on time will plague the business owner’s mind.

“The Pros and Cons of IT Outsourcing”, an article by Yvonne Lederer Anotucci warns business owners of the following risks when considering IT Outsourcing.

  • Not all IT functions can be outsourced – Just because some of your business operations can be categorized under the IT banner, it does not mean that it is viable for outsourcing. One should be assured completely that the partner chosen is fully equipped to handle the tasks.
  • The issue of control – When operations are sent out of the boundaries of the business, there is some loss of control. It will not be the same as employing somebody to complete the tasks in-house. A supervisor knowledgeable in the IT tasks, can help minimize the risks of data theft and data loss.
  • Lost employee morale – Outsourcing often means that jobs will be cut. When functions that were hitherto carried out in-house by staff members are sent to off shore locations, those staff members become redundant. They are either moved to different tasks or are given their final pay package. When this happens on any scale, the rest of the employee base often thinks about their jobs as also being on the line.
  • Limited flexibility – The major risk with outsourcing is the feeling of being locked to the same partner. When the partner in this business model is knowledgeable, the risk of being taken in is always a reality. The business owner might not be always aware of the processes and therefore might have to remain in a contract with the same company.

These risks are all based on hypothetical situations and can be completely avoided if one is aware of what questions to ask and how to choose the correct IT partner. Some questions that are available on the net even get the business owners thinking if it is better to send the tasks to off-shore locations or get them completed in-house.

Is outsourcing beneficial?

Beyond all the risks and the reasons, understanding the rewards of choosing the business model is also crucial. Anotucci also listed the rewards of outsourcing in her article. According to her list, the rewards are listed below.

  • Access to the cutting edge of technology – With IT outsourcing the service providers are bound to be trained in the latest of technological advancements if they desire to have bigger and better clients. Another benefit is having access to more than just one IT professional proficient in various avenues. Since IT is their core competency, their advice is definitely going to be sound.
  • Saving costs – The financial benefits to the business model are manifold. A leaner overhead combined with reduced costs of software licenses and lack of compliance with government regulations are all factors that will reduce the running operations greatly. Further, there is also access to bulk lease and purchase options for software and hardware required for the tasks.
  • Access to certified specialists – Given that the core competency of the service provider is in the IT industry, there is no doubt that their employee base will be certified and trained in the latest technological advancements.
  • Unlimited resource base – When the same task is done in-house and in off-shore locations, the amount of resources available in-house is bound to be lesser. With outsourcing, the fact remains that the service provider has a wider range of resources at their disposal.
  • Establishing a stress-free working environment – One of the greatest benefits of this business model seems to be that the current employee base need not worry about completing tasks that they were not hired to do. Employees can focus on their own tasks. The chances of a burnout then are far reduced.

The risks, rewards and reasons for outsourcing are numerous and vary according to the industry and the company. The fact that it is a definitely viable option however remains. Managing a working relationship whether with the in-house employees or with the service provider is still an important aspect of running a business successfully.

Before turning to outsourcing, as a business owner, one must be fully aware of their objectives and goals. A clear plan and vision for furthering the business will definitely lead to a fool-proof plan with regard to outsourcing.

References are the best calling card for service providers. An open line of communication and a clear financial and other expectations plan will ensure a working relationship with no misunderstandings. A fair level of support and involvement is still the responsibility of the business owner. Outsourcing is not equivalent to sweeping the tasks under the rug. Choosing the right business plan in order to further the business is the responsibility of the owner and deciding if outsourcing is a good catalyst or not is dependent on a lot of factors as outlined in this article.

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