The Pros and Cons of Outsourcing

Wed 25 Jan 2017

When deciding whether to outsource certain business functions, you should consider both the benefits and risks that this decision may entail.

According to The Outsourcing Institute, the most common functions that businesses outsource include: Customer Services, IT, Human Resources, Finance, and Administration.

The main question that companies need to ask themselves when considering contracting a third party for specific functions is; can another provider do the job faster, better and save me money?

We have put together the following arguments both for and against outsourcing to help you make this important business decision.

The pros of outsourcing

Quality services and specialist knowledge base – the third party supplier would be a specialist in their field with a multitude of experience, often equating to a better value add than an in-house team. The third party would consider the specialist function to be either their primary or sole source of business, they therefore have a reputation to uphold and strive to deliver exceptional quality services.

Competitive advantage – selecting a highly capable and experienced third party provider to outsource a specific function can give your company a competitive advantage over those who choose to carry the burden themselves. You are then able to focus your workforce on your own primary business purpose.

Cost savings – many businesses choose to outsource due to the significant cost advantages compared to running the function in-house.

Flexible resource – functions that are not core to the business may have ‘peaks and troughs’ of workflow, making it costly and inefficient to hire permanent members of staff to this area. However a third party supplier will be flexible to suit your needs and supply interim resource as and when it is needed, keeping costs down and efficiency levels maximised.

Risk mitigation – as mentioned above, non-core workflow can flex up and down and a sudden surge of unexpected work is a business risk. Using an external supplier helps to moderate this risk as they are well experienced and equipped with correctly skilled resource. 

The cons of outsourcing

Loss of control over business processes – by outsourcing specific functions there will consequently be less intervention required from your business. This can have a negative impact as you will not have the same level of control and oversight as you otherwise would have. However, correct MI and regular communications between both parties can minimise or even remove this risk.

Linguistic barriers – in recent years, outsourcing on an offshore basis has become especially popular as there is an even larger cost saving involved. If you choose to outsource offshore, you need to be aware of the potential communication problem.

Company knowledge – an external supplier will not know your company as well as your employees and this could cause challenges. However processes can be put in place to ensure that knowledge is shared and communicated in an effective manner between current employees and the third party.

Outsourcing can bring a range of benefits to your business and as stated above, many of these outweigh the potential risks. It is important to also consider the rules that the FCA has set out around outsourcing as these are intended to ensure outsourcing is adhered to in a correct and fair manner for both parties.