Facts about Outsourcing that Can Save You Money

The basic benefits of outsourcing are well known by the majority of businesses: cost savings, and the ability for a company to focus on core business processes that drive revenue. However, there are hidden benefits that are often overlooked by the general public. The following describes these benefits:

  • Time zone advantages: If the hiring firm and the outsourcing firm are in different time zones, then production can be 24/7 in daytime hours. This can enable nighttime shifts at low costs, and productivity can be greatly improved.
  • Affordable expertise: Outsourcing firms are usually experts in their field. They have refined their practice and methods through years of experience and through various clients. A hiring organization can benefit from this expertise at a lower cost than an equivalent option such as a consulting firm. The outsourcing firm may provide more benefits than the work task initially appears.
  • Increase in customer service rating: The outsourcing firm will be able to focus solely on customers instead of the in-house staff being divided among tasks. Outsourcing firms can use expertise and dedicated workers in order to be more efficient than the company would normally be.
  • Risk sharing: The outsourcing company will assume some of the risk of the project when they partner with a hiring firm. The most notable, is the hiring organization not having to take the risk of training and supervising new employees.
  • Scalability: Outsourcing allows companies to quickly increase their operations without having to sacrifice long-term growth. For example, if a project requires more employees, then outsourcing will enable the project to get completed without having to recruit, hire, and train new employees. This enables companies to not have to worry about expanding beyond what they can afford.

Hidden disadvantages to outsourcing

As with the advantages to outsourcing, there are always hidden disadvantages in addition to the well-known disadvantages. Some of the well-known disadvantages to outsourcing are loss of quality control and poor partnerships with an outsourcing firm. Here are some other disadvantages:

  • Hidden costs: There are hidden costs with hiring an outsourcing firm that are not always taken into account when determining the outsourcing budget. Most of the costs will be provided in the contract that is signed with the outsourcing firm. However, companies will still have to pay for legal fees for hiring a lawyer to oversee the contract as well as any additional costs not stated in the contract. For example, the hiring organization might have to purchase new software in order for the outsourcing firm to complete their work.
  • Profit motivation: The outsourcing company is motivated by profit and not by quality. They will not strive to go above and beyond what is in the contract because it is not profitable for them. As long as the firm completes the work in the contract, then the hiring company will have to pay. By hiring an outsourcing firm, there will be little innovation and there will not be products that are above expectations.
  • Security and confidentiality threat: The outsourcing firm will have access to any confidential company information needed to complete the task (payroll, medical information). Furthermore, by granting access to some information, there is always the chance that the outsourcing firm can become compromised and access information that is not intended to be accessed by the firm, leading to stolen ideas.
  • Financial ties: By signing a contract, the hiring organization is financially tied to the outsourcing firm. If the outsourcing firm goes bankrupt, the hiring organization will suffer both money loss and the work that the outsourcing firm was providing.
  • Bad publicity: Some consumers have a negative connotation of outsourcing and associate it with cheap labor and cheap products. Sometimes, communities will have negative feelings towards outsourcing because their community has lost jobs to outsourcing overseas. This can lead to a reduction in sales or poor brand management for companies if not managed correctly.

3 tips for successful BPO outsourcing  

In order to be successful with business process outsourcing and to get the most out of the company’s invested time and money, companies should follow this list of tips:

  • Verify trust: Hiring organizations should allow outsourcing firms to conduct their business process operations without interference.  However, hiring organizations should still exercise strong vendor management in the form of service level agreements and metrics.  Companies should take the time to ensure that SLA’s are aligned with the BPO industry standards and with the company’s expectations.  SLA’s can balance the risk in the BPO partnership. The hiring organization should always the monitor the work of the outsourcing firm in the form of metrics to ensure that the work is being done correctly.
  • Enable outsourcing firm to exploit its comparative advantages: Most BPO firms make a margin on delivering the services that the hiring organization outsources. Thus, the outsourcing firm will cut costs in order to achieve this goal. The hiring organization should not interfere and place limitations with the capabilities of the outsourcing firm because it will reduce the effectiveness of comparative advantages.
  • Enable flexibility: The hiring organization should avoid having a non-flexible contract with the vendor. There are always unforeseen events, and having a flexible contract can avoid disasters. By not locking in, hiring organizations can gain leverage in contract negotiations.
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