Say the word outsourcing and many employees cringe, immediately worrying their jobs are in jeopardy of being sent overseas. That’s not usually the case, as outsourcing is used extensively in companies without employees necessarily making the connection. Once the basics of outsourcing are understood, the word takes on a less negative meaning. Employees can even use this knowledge to avoid being outsourced themselves.
What is Outsourcing?
Outsourcing has a broad definition, and at its highest level refers to any work a company decides to have another company perform instead of its own employees. Done successfully, outsourcing can lead to lower consumer prices, greater shareholder profits, and higher business growth. Done poorly, it can bring about inefficiencies, lower employee moral, and a decrease in profitability.
When Should I Consider Outsourcing?
The answer to this question is simple; you should consider outsourcing all the time. As a business owner or department head, you should constantly evaluate strategies to save money and increase productivity. Specifically, look for areas in which the work is repeatable, well-defined, and easily measured against quality standards. You wouldn’t normally want to outsource a mission critical task such as strategic planning.
Where Should I Outsource?
Some people believe outsourcing occurs only when specific business functions are moved to India or China. While it is true that this movement qualifies as outsourcing, it can also occur closer to a business’s home country or even within the country itself. Outsourcing is all about finding the lowest cost, highest quality sub-contractor, and that doesn’t always mean going overseas.
What Are Some Examples of Outsourcing?
A manufacturer may choose to outsource the production of a specific part to a company with greater expertise in that area. Automobile manufacturers do this for many of the parts that go into their vehicles. The parts are shipped from the outsourcing firm to the assembly plant where they are assembled into the final product. A car maker would be quite inefficient if it had to produce every component itself.
Companies with large customer service operations may consider outsourcing this function to a lower cost provider. As long as the quality remains high, the company may realize substantial cost savings. We’ve all called a major credit card company and instantly recognized the customer service representative is located in another country.
Businesses may also outsource specific information technology (IT) work, such as system maintenance & operations, or computer programming. If the deliverables are well-defined up front and quality expectations understood, the IT group may be able to take on more work at a lower cost than hiring additional employees.
What Are Some Advantages and Disadvantages of Outsourcing?
Knowing what to outsource and what not to outsource is key to both saving money and increasing productivity. Using outsourcing in the right amounts will help your business decrease costs, which you can pass onto the consumer. Outsource too much, and you risk losing control of your business operations. Ignoring outsourcing as an option can mean higher consumer prices and lower profitability. Learn how to avoid the pitfalls of outsourcing, and you’ll improve your company’s overall operations.