Some Disadvantages of Outsourcing.

In my last post I discussed some of the advantages of outsourcing but it may not always be the best option for a company.

Here I will discuss some of the main disadvantages of outsourcing.

1.  Loss of managerial control:  While outsourcing can be a solution to many managerial headaches, it can also be the cause of some.  If you agree to outsource some of your operations to another company then you effectively put them in charge of that task for the duration of the contract.  Of course a lot of specialists in outsourcing companies will be open to suggestion in order to keep their customer (you) happy but you may not always be fully aware of what they’re doing until it’s too late.

2.  Hidden costs:  We all know that outsourcing is used as a way to minimize costs.  Outsourcing companies know this too and so they will compete with each other on price.  In order to do this they may subtly imply a certain package without actually stating the specifics.  You may later find that you’ve paid for a lot less than you had originally thought you were going to get.  They may start billing you for “additional charges” which you had assumed would be fairly standard and already covered in the agreed contract.  If you choose to fight them legally on this you may find that they have sewn up every loose thread and that you are now cornered.  They are in the business of doing this and so they invest huge efforts into ensuring an airtight procedure.  Unfortunately your legal costs won’t pay themselves either.

3.  Threat to security and confidentiality:  While your business may follow strict policy with regard to confidential information there is nothing that guarantees your outsourcing company will adhere to the same standards.  If they are granted access to personal information of staff, business plans or product ideas it should first be ensured that your contract with them has penalty clauses to restrict the misuse of such information.

4.  Quality problems:  Although expected, they might not use the best tools for the job or necessarily go about things in the best way.  They’re only obligated to fulfill the contract agreed and so they may cut corners in  order to reduce their own expenses and therefore increase their profit levels.

5.  Tied to the financial well-being of another company:  You are now relying on this other company to take care of some task for you.  Should they experience financial difficulties which result in them going out of business you may be left in the lurch!

6.  Bad publicity and ill-will:  Some workers feel very threatened by the thought of jobs being outsourced.  Should they see job losses in one department due to outsourcing they may feel threatened and the morale among workers in your firm may fall.  As well as this, should the outsourcing company you’ve used receive bad publicity in the media and it is widely-known that they supply to you then the reputation of your company could be jeopardised.

7.  Time wasted in securing satisfactory outsourcing:  Lengthy bid-processes along with negotiations can be very time-consuming.

8.Lack of strategic alignment:  As mentioned earlier, the interests the outsourcing company and your firm could be very different.  If these interests are too far-removed then outsourcing simply is not the best fit for your organisation.  Look within your organisation.  These people will have a vested interest in the success of your business and will more than likely be willing to work harder to achieve such successes.  Most analysts recommend that firms do not outsource any key functions which directly affect the products or services produced by the company.

 

 

Sources:

http://www.referenceforbusiness.com/small/Op-Qu/Outsourcing.html

http://operationstech.about.com/od/outsourcing/tp/OutSrcDisadv.htm