Whether one is trying to prevent one’s company from outsourcing or searching for a next project to outsource it doesn’t hurt to know what kind of problems outsourcing can bring upon one’s future and organization.
In other words, what are the main disadvantages, cons, negative aspects of outsourcing?
– 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 enough , there will be a contract, but the managerial control will belong to another company. Your outsourcing company may not be driven by the same standards and mission that drives your company. When you outsource a function from your organization to a third-party you are effectively signing over management control and decision making for that function to another organization. Even if you will have a contract in place to cover the service level agreement, it won’t cover management decisions, and the third-party may probably not be driven by the same factors that drive your organization, resulting in potential conflicts.The main piece of advice in this particular situation is , that before signing the new contract , the manager thinking of outsourcing should communicate all his / hers future desires clearly, right from the beginning.In this particular way , undesirable situations can be prevented. Furthermore , the organization outsourcing should look for compatible goals and common ideas with the company that is ready to take the specific business part further.
– Hidden Costs: A contract will be signed with the outsourcing company that will cover the details of the service that they will be providing. Anything not covered in the contract can be the basis for additional charges. Moreover, you will experience legal fees to retain a lawyer to review the contacts you will sign. One should always remember that this is the outsourcing company’s business. They have done this before and they are the ones that write the contract. Therefore, you may be at a disadvantage when negotiations start.
– Threat to Security and Confidentiality: The center 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 ( product drawings, formulas, etc.), this must be taken into account. Evaluate the outsourcing company carefully to make sure the data is protected and the contract has a penalty clause if an incident occurs.
– Political and cultural problems: With offshore outsourcing, a risk of the outsourcer being entwined in the politics of the vendor nation or of at least be affected by the political instability in the region. Thus, smooth functioning could be hindered. Cultural differences are also greater in case of off shore outsourcing. Misunderstandings can occur due to barriers in language. Not understanding the culture of the outsourcing provider and the location where you outsource to may lead to poor communication and lower productivity. In order to avoid such cases , the company ready to sign an outsourcing agreement should evaluate their business partners and through communication and understanding , ensure that they can truly understand one another’s expectations and desires and benefit from mutual success.
– Quality Problems. In some cases the outsourcing company may 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, the outsourcing organization will have to pay. In addition, the ability to rapidly respond to changes could be lost in the business environment.
– Furthermore , when outsourcing one may be tied to the financial well-being of another company. Since one will be turning over part of the operations of one’s business to another company, one will now be tied to the financial well-being of that company. Bankruptcy could be an issue in this case.In order to prevent this kind of situations the outsourcing company should always do a detailed research in regards to the payment history of his partner and see whether they are reliable for the job and able to financially sustain the project.
Having all of this data , the organization ready to outsource should always conduct a very thural analysis before being ready to sign a new agreement. The first step in outsourcing is taking the screening process seriously and finding the most qualified candidate for the job that is outsourced. This will make the outsourcing effort more likely to be successful if the hired applicant is qualified to do the job. Outsourcing is the right alternative for one’s business if looking for ways to increase productivity and earn a well deserved profit. As all things of course , it has it’s drawbacks. None that cannot be eliminated if the correct research is done and if the outlines and business desires are correctly expressed.