The advantages and disadvantages of outsourcing

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Outsourcing is just a way of contracting a particular service to third party. Shared Services is a tried, tested and proven way to achieve the triple benefit of lower costs, improved control and better services (Wikipedia, 2009).

In the year 2005, a survey was carried out on which area of finance & accounting (F&A) is mostly outsourced; it was found out Payroll and billing is 63%, IT or system support is 56%, Tax services is 56% and so on. We have seen from the trend, payroll is the most outsourced business processes (Segantini, 2005).

Advantages of Outsourcing (Outsource2india, 2009)

  • When you outsource your non-core business activities, it will give you enough time to concentrate on your core business activities;
  • There is chance that you will have access to professional and high quality services with offshoring;
  • This will lead to improved effectiveness and productivity in non-core business activities when you outsource;
  • You will be able to streamline your business operation when you outsource;
  • There is chance that you will be able to save time, manpower, any operating costs and even training costs with the help of offshore outsourcing;
  • With the help of outsourcing, you can have control of your business;
  • In the area of investing on latest technology, latest software and latest infrastructure, your organization do not need to invest on those things again as the outsourcing company have already invested on them, that will save time and money;
  • With outsourcing, your company is guaranteed that the business processes are carried proficiently and within the target time;
  • Capital expenditure is one the important thing for outsourcing, as this will enable your organization to save on that;

Disadvantages of Outsourcing (Outsource2india, 2009)

  • When your company outsource the followings financial service (payroll and tax), there is huge tendency that you will be exposing confidential information of your company to the outsourcing partner and this may lead to security threat;
  • When you outsource your business processes, this may lead to difficult in managing the offshore provider as when compared if you are to manage it within your company;
  • It may lead to potential redundancy in your company;
  • If your outsourcing partner becomes bankrupt, your companies will start to look for another outsourcing partner;
  • There is tendency that you may lose control of your business processes that have been outsourced;

In conclusion, we have been able to see the advantages and disadvantages of outsourcing, if you feel that the disadvantages will outweigh the advantages on the business process you want to outsource, it is advisable not outsource that business process. In the case of my organization we do not outsource any of our business processes due the fact that we are small company we both weigh the advantages and disadvantage of outsourcing.

References:

  • Segantini Luca (2005) Shared services, Outsourcing, Technology as options to F&A Transformation [Online] Available from http://www.outsourcing.com/content.asp?page=01b/other/oe/q405/sharedservices.html&nonav=false (Accessed: 14 May 2010)
  • Outsource2india (2009) The Advantages and Disadvantages of Outsourcing [Online] Available from http://www.outsource2india.com/why_outsource/articles/advantages-disadvantages-outsourcing.asp (Accessed: 14 May 2010)
  • Wikipedia (2009) Outsourcing [Online] Available from http://en.wikipedia.org/wiki/Outsourcing (Accessed: 14 May 2010)

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