Services Outsourcing

Pros and Cons of Outsourcing

This article is an attempt to try to understand a favorite topic that as of late, earned a lot of attention from the media, about whether the outsourcing advantages outweigh the disadvantages and vice-versa. The truth is, in everything there are always both the ugly side and the upside of it. Something that is inevitable in every business attempt or even in every aspect of life. Come on, as if we did not know that! But what the heck, the topic seems interesting enough to explore and be part of an almost concerning yet entertaining subject. So let’s talk about it.

There is no way you will invest into something that you have no knowledge about. So before you join the many who have tried outsourcing their business into the hands of a stranger, perhaps you could try to learn as much as you can first from the many success stories behind outsourcing and the unsuccessful stories as well before you decide. I believe, this is the easiest way of finding out what serves you best.

Well here is the good and the bad reasons why you should consider or not, recommend or not the offshore outsourcing to others. To cite the significant ones are:

Outsourcing can cut your cost, time and most importantly will save you the headache of managing the rather repetitive and quantitative tasks. Assigning it to someone trained to do this task will do you much of a favor by allowing you to deal with the more important ones and free you from burnout. However, you just make sure you send the work to the right resource person. Or otherwise you are just digging your own grave. So wise-up, select with care. You have the power to choose wisely.

Another reason is that, you can avail of paying for cheaper labor. Why? Workers in developing countries are paid far less than workers in developed countries due to the lower cost of living. Moreover, enjoy the benefit of hiring these people on a work on demand basis… meaning, minus the hassle of managing a massive staff, less overhead, less fixed investment.

Although, the greatest advantage of offshore outsourcing companies is the flexibility of time that they offer. Compared to western workers, Offshore agents are noted to be more adapted to work to any time schedule the client demands of them.

So, whether you agree or not… this topic need not be taken further. Besides, at the end of the day, it is your decision. Educating yourself means empowerment, grab that power to your advantage… and make every deciding factor count.

Outsource Services

In this day and age, money-profit-revenue-savings, though they mean almost one thing, has been the driving force and the barometer of success in the business world. The more savings, the more revenues, the better. That is why, entrepreneurs find effective ways to head in this direction. This is where “outsourcing” comes in.

Clients of outsourcing companies are not ordinary individuals but people who represent a company, an organization, or large firms from mainly US and Europe. They delegate some of their activities into the hands of an external organization or unrelated party that specializes in a particular service. Although, there are several other outsourced services out there, the three (3) main types of outsourcing are the following:

Technology Services Outsourcing
Business Process Outsourcing (BPO) and
Knowledge Process Outsourcing

Technology Services Outsourcing was born to keep up with the continuously changing technology. Gone are the days when businesses settle for inferior technology. As a result, business enterprises give in to the need to invest in the latest technologies and systems to stay competitive. This means added expenditure since it will involve a huge capital outlay for website development, network infrastructures, applications, telecommunications and so on and so forth. So to save funds, they outsource the job. Which means, creating extra revenue by not putting in extra investments; and there won’t be a need of hiring new employees or a need of training your current employees or yourself..

Business Process Outsourcing (BPO) – The BPO started when the internet was invented. BPO is the process of hiring a third-party company or service provider to handle certain functions such as payroll and employee benefits management, customer service activities, human resources, accounting and call center. Further, BPO can be typically categorized into back office and front office outsourcing. Back Office handles internal business functions like billing and payroll. While front office outsourcing generally involves customer-related services or customer service. Other BPO functions include information technology enabled service orITES since most business processes include some form of automation.

Knowledge Process Outsourcing (KPO) – an offshoot of a BPO. The defining difference is that KPO is more focused on knowledge-intensive business processes not just data entry; it involves high-value work carried out by highly skilled staff. The outsource work providers here are expected to work independently and often make many low-level business decisions. The present definition of KPO goes beyond R&D, product development and other business functions. Clearly, this is a more advanced process of outsourcing.

Offshore Outsourcing

So they say: “The only constant thing in this world is change.” The concept of Offshore Outsourcing started in the 1990s when different IT companies came up with the idea that costs are reduced by employing people outside their mother country through a virtual or online setting to do certain tasks for them. Although at first, the term brought frown to many unsatisfied customers. But over the years or say, as we speak, Offshore Outsourcing has gained a welcome and wide acceptance to people especially those in the online business sector…a whole new system, made possible through the exist of a certain technology that remarkably changed the everyday people’s way of life, the Internet. Thus, we could say this is the new way of conducting business in modern-day society.

Many organizations in developed countries are adopting this so-called Offshore Outsourcing practice for many reasons. To name a few that really stands out: With offshore outsourcing, service providers would do just about anything you would like them to do; from telemarketing, to business process outsourcing, to customer support, technical support, customer service, help desk support, email, web chat support and many more. How convenient is that, right?

Secondly, for economic reasons. Professional fees or service fees of offshore companies are based on their “own currency”, making it very affordable.

Moreover, the offshore outsourcing companies offer 24/7 support and are very much willing to work any time of the day as you would want them.

Finally, the outsourcing industry is an extremely competitive one and many offshore outsourcing companies are really striving hard to give quality services to satisfy their clients as well as to attract new ones.

Bottom line, through offshore outsourcing management, companies achieve a substantial reduction of cost and bigger profits at the end of each project…clearly, it’s really about the costs. Less cost, means an increase in savings, means an increase in profit. To even support this logic, let me quote what Keynes’ have to say about this: “Savings is equal to the excess of income over consumption.”

So obviously this answers why a lot of companies invest in offshore outsourcing because of monetary gain as far as savings is concerned. Through outsourcing, they get to save more, eventually, they get to increase their overall profitability which is the goal of any business organization. But these are just even some of the benefits that the supporters of this kind of business set-up get to enjoy. Hence, the outsourcing industry has also grown with an unexpectedly rapid rate in no time.

Outsourcing BPO

One of the fastest growing industry in the business world is the Business Process Outsourcing (BPO). Outsourcing can be simply defined as a process wherein a company enters a contract with an external or another organization to handle functions considered as non-core to their primary business. BPO is only one type of outsourcing that has proved to be a potentially promising kind of business.

In the early days, BPO started as a kind of organization only providing outsourcing processes like payroll. But eventually, over the years, it evolved and offered new services such as employee benefits management, financial and administration (F&A ) processes, human resources (HR) functions, customer service activities, call center and accounting.

While, BPO seems to be a very attractive and profitable enterprise, putting up and setting up one is not that simple. BPO companies like any other businesses, need a first-rate management group. A business run by people who have a vision, a solid plan and most especially the conviction to pursue such an undertaking. Many call center companies fail in their effort to grow their business because of poor management team. While the plan and the visions are there, it all goes wrong during the execution. They tend to get too excited and too aggressive to oversee somehow the more essential components in the process particularly in its customer service and HR functions. These two problem areas demand a delicate and discerning approach in reality, difficult to crack. Hiring the right persons, training them and making their employees happy is the most challenging part for a BPO to master. A lot of call center agents are not afraid to quit their job, knowing what they know, the demand for call center agents are high… hopping from one call center to another became the trend. So that explains why BPO’s are losing people periodically which is a waste of time and resources. And losing people means recruiting, hiring and training new ones. Although this is only one of the many things that they should put into consideration, it happens to be a crucial one.

Other concerns will be the performance metrics of the company. Outsourcers expect call centers to be in accord with project requirements. Meeting the requirements means projects grounded on a sound and strong foundation.

But despite of all these challenges, the BPO industry remains strong. It will survive because no matter what the odds, their contribution and importance in the business market are just too great to disregard.

Disadvantages to Outsourcing

So they say, there is always two sides to every story just as well as there are two sides to every coin. Whether in life or in the world of business, it is imperative to look at both sides – i.e. advantages and disadvantages…but more so the disadvantages. In outsourcing, when a company decides to entrust certain functions to an outside supplier or independent firm, it’s better that they study and evaluate the pros and cons thoroughly first before choosing this course of action. Weigh the good against the bad to find out if it is the right thing to do or not. Knowing what you know gives you a certain edge. While “outsourcing” became popular due to its reputation as an economical solution for companies in developed countries, it is not the perfect alternative…it has its own disadvantages. However, as for me, the very root of all these “harm” lies the moment you select your outsourcing partner. Ask yourselves: Is it the right service provider for you? Is this the service provider who can guarantee to keep all information with utmost confidentiality? Are they professional in all aspects of their business dealings?

Let’s name the disadvantages about outsourcing:

Not obtaining the desired results/output
The scare is not meeting the agreed standard requirements. A service provider should have a set of quality standards to comply and synchronized deliverables. The client should be able to find a service provider that they can trust, whether they are a freelance worker or organization, they will be able to deliver the product or service as agreed on. Otherwise, the outsourcing company may suffer the consequences of incurring another cost of having the process done by another supplier to fulfill the right results. In other words, paying twice for the same job.

Less managerial/operational control
Companies that outsource can lose control over the processes, since functions become entirely, as a result, controlled by the outsourcing partner. Your service provider may not necessarily share the same standards and mission that motivates your company. Remember, they are also making business out of you.

The risk of your service provider to go out of business/runs into financial difficulties
When this happens, the client-company faces the hassle of finding another firm to continue the aborted project or will have to consider taking the process back in-house. Aside from that, project timelines may also suffer as a consequence.

Irritated employees of the client(company)
Employees of the outsourcing company may in effect feel some grudge the fact that some tasks are being outsourced, as a consequence, they may be reluctant to work with the outsourced staff willingly.

Irritated customers
Especially in call centers, if the service provider does not observe strict quality control in their choice of their agents, customers of the client-company can get irritated due to communication problems. When calling customers cannot understand what the customer service representative is saying because of language deficiency or annoying accent. This causes more frustration or contributes more unresolved customer complaints.

Security and confidentiality matters
Trade secrets and business information of a company such as payroll, medical records, or any other classified information can be put at the risk of being exposed if these kinds of data or knowledge will be shared with the outsourcing company. It is advisable to evaluate to which service provider you will entrust these kind of information. Include in your contract a penalty clause as an additional safeguard if unauthorized leakage of vital information occurs.

Although, there are disadvantages to this kind of system, still it is not reason enough to avoid outsourcing. The goal is to consider the value that it may add as well as the impact to your existing business.