Advantages and Disadvantages of Outsourcing
An increasingly popular commercial trend has been outsourcing. It has been estimated in 2011 alone more than 2.2 million jobs were outsourced by U.S. firms and 43% of IT services firms undertaking some type of outsourcing (Statistic Brain, 2012). For this level of outsourcing to exist there must be potentially significant advantages, however there are also likely to be disadvantages.
Key advantages may be summarized as gaining efficiencies while reducing both costs and some risks. Outsourcing services to a specialist firm may allow an organization to gain expertise that they may not be able to afford to bring in if recruiting for in-house staff (Kroenke, 2011). Experienced high level experts can be hired by outsourcing firm with the higher salaries associated with the expertise affordable as each client is only using the expertise for a limited number of hours (Kroenke, 2011). This not only allows does access to services needed, and may improve quality with better quality inputs, it is also a ; if the services do not require a full time employee the costs will be lower; relative to the time needed (Kroenke, 2011). Outsourcing firms may also benefit form their specialization in being able to gain economies of scope and scale, which may also help to provide cost advantages and increased efficiencies (., 2008)? If outsourcing is also combined with off shoring cost advantages may also benefit from comparative advantages (Mintzberg et al., 2008).
Where services are outsourced there are also advantages associated with the ability to avoid the overhead resources and costs required if the service where , such as office space, equipment and management time and effort (Kroenke, 2011). This can also reduce risk in terms of the ongoing management needs; any problems in terms of employees, systems or equipment are transferred to the supplier (Kroenke, 2011). The transfer of the services may also reduce the capital needs associated with the services.
However, there are also disadvantages. In outsourcing the firm may loose control of some functions, there are risks associated with the potential loss of intellectual capital and there is a higher reliance on an external firm for services which may not always deliver the required quality (Kroenke, 2011). There are also potential disadvantages associated with poor publicity when firms outsource jobs to an offshore location (Mintzberg et al., 2008).
Advantages and disadvantages exist; it is up to each firm to determine if the advantages outweigh the disadvantages.
Kroenke, David M, (2011), Using MIS, Prentice Hall
Mintzberg Henry, Ahlstrand Bruce, . (2008), Strategy Safari: The Complete Guide Through the Wilds of Strategic Management, Financial Times / Prentice Hall
Statistics Brian, (2011), , [online] http://www.statisticbrain.com/outsourcing-statistics-by-country accessed 26th May 2013