Home Page > Publications > IT Outsourcing Advantages & Disadvantages

According to Dean Meyer outsourcing is not only a time saver but has got many advantages. The major advantages of this can be explained (http://www.sourcingmag.com/content/c051011a.asp)

Money Saving

Economies of scale save money when unit costs go down as volumes increase. External service providers can achieve economies of scale unavailable to individual firms when they combine the volumes of multiple companies

Risk Sharing

The sharing of risk in financial circle known as “portfolio effect”. Investing money in diversified areas will help to share the risk of spending the whole in a single place

Development of Internal Staff

Internal staff will be able to explore the very core area of the project as they will be free from the life ending/ less interesting functions in the operation

Accommodation of extreme loads

Outsourcing can be used to minimize fluctuations in headcount that could result from peaks and valleys in demand.

Here are some of the main disadvantages as listed by operations tech:

"Loss Of Managerial Control
Whether you sign a contract to have another company perform the function of an entire department or single task, you are turning the management and control of that function over to another company. True, you will have a contract, but the managerial control will belong to another company. Your outsourcing company will not be driven by the same standards and mission that drives your company. They will be driven to make a profit from the services that they are providing to you and other businesses like yours.

Hidden Costs
You will sign a contract with the outsourcing company that will cover the details of the service that they will be providing. Any thing not covered in the contract will be the basis for you to pay additional charges. Additionally, you will experience legal fees to retain a lawyer to review the contacts you will sign. Remember, this is the outsourcing company's business. They have done this before and they are the ones that write the contract. Therefore, you will be at a disadvantage when negotiations start.

Threat to Security and Confidentiality
The life-blood of any business is the information that keeps it running. If you have payroll, medical records or any other confidential information that will be transmitted to the outsourcing company, there is a risk that the confidentiality may be compromised. If the outsourced function involves sharing proprietary company data or knowledge (e.g. product drawings, formulas, etc.), this must be taken into account. Evaluate the outsourcing company carefully to make sure your data is protected and the contract has a penalty clause if an incident occurs.

Quality Problems
The outsourcing company will be motivated by profit. Since the contract will fix the price, the only way for them to increase profit will be to decrease expenses. As long as they meet the conditions of the contract, you will pay. In addition, you will lose the ability to rapidly respond to changes in the business environment. The contract will be very specific and you will pay extra for changes.

Tied to the Financial Well-Being of Another Company
Since you will be turning over part of the operations of your business to another company, you will now be tied to the financial well-being of that company. It wouldn't be the first time that an outsourcing company could go bankrupt and leave you holding-the-bag.

Bad Publicity and Ill-Will
The word "outsourcing" brings to mind different things to different people. If you live in a community that has an outsourcing company and they employ your friends and neighbors, outsourcing is good. If your friends and neighbors lost their jobs because they were shipped across the state, across the country or across the world, outsourcing will bring bad publicity. If you outsource part of your operations, morale may suffer in the remaining work force."

As with anything in life it depends on which side of the coin you are looking from. It is always possible to find postives and negatives, the key is tailoring a solution that fits your business....there certainly is not one size fits all....

Quick Contact Form
Company Name
Contact Name *
Telephone Number *
Email Address *
Message