What Are the Disadvantages of Outsourcing?
Offshore outsourcing Strategy

What Are the Disadvantages of Outsourcing?

By Mainak Biswas August 21, 2013 - 1,442 views

With the advent of globalization outsourcing has experienced a phenomenal growth. The success story of this concept is so over-powering that it has almost outshone the disadvantages associated with it. This concept may have helped myriads of companies in accumulating wealth but it has also spelled doom for many, and honchos at Boeing can very well vouch for this statement. More often than not, companies get so busy reaping the short term gains that they lose sight of the unpredictable astronomical losses, which is almost like collecting dimes in front of a bulldozer.

So, what is wrong with outsourcing?

Nothing is wrong with outsourcing. The way some businesses use it is wrong. Initially outsourcing business processes helped companies save a lot of money and it was passed on as a newly found corporate genesis which could substitute the traditional ways at a very less cost. This belief did hold good as long as outsourcing was handled properly, but it was soon discovered that any glitch or unpredicted spikes in the defined process proves fatal for the business.

Importance of far-sightedness

Far-sightedness is one of the prime prerequisites to chalk out a strategy for outsourcing which, let’s face it, lacks in the new kids on the block. Most of the nascent business units led by young professionals that solely rely on outsourcing suffer an ill fate because of lack of far-sightedness and curtailed experience. A detailed description on the common problems associated with outsourcing can help young entrepreneurs develop a fair idea and induce a sense to use this practice judiciously.

• Power shift in the Managerial Control

When you enter into a contract with another company and allow them to perform your business processes you involuntarily turn the managerial control to them. This could turn your company into a mere “authority” that the outsourcer is working for, a relationship of this sort differs substantially from a normal in-house work relationship. The company that outsources cannot oversee the functioning of the operations which may lead to loss in quality and other quality related issues. Your extended work force may not imbibe your company’s cultural values and exerting these values may not be even possible. Their only motivation would come from reaping maximum profits from the services provided by them to your company which is not an ideal work relationship.

• Uncalled for legal problems

When you sign a contract with another party, you are liable to release payment if the conditions of the contract are met. To meet the conditions the other party can stoop down to any levels and even comprehend the conditions of the contract to its benefit. To counterfeit such implicitly deduced inferences a legal aid is usually sought, which adds to the unseen costs. A situation like this invites expenses which are uncalled for and causes unnecessary psychological stress. It has been noticed that, while outsourcing almost all the companies ended up seeking legal help, and spend indeterminable amounts of money. Once both the parties enter into a conflict, it turns into one of those sunny days for legal advisors to make hay.

• Quality is compromised

When a third party organization takes control of internal business processes of a company, the quality of service rendered can be questionable and is often not up to the mark. Reaping greater profits is the sole motive for most of the organizations and in doing so they tend to cut down on expenses which can directly affect the quality of work delivered by them. This is something that an in-house department of a company would never do, as its own company’s reputation is at stake, but a third party whom you outsource your business process may not think in the same lines.

Reviewing the quality of a product is much easier than reviewing the quality of services rendered by the third party to your company’s customers, which leads to confusion and delay in claim settlement. Recently, Dell fell prey to this situation, it had hired a third party to handle its customer grievances cell and the customer complaints increased exponentially over  the call centre executives not being adept in handling the complaints. To substantiate its claim against the third party Dell had to conducts surveys and collect feedback from its customers, this activity itself entailed a significant amount of expenses which were not foreseen.

• Surprise hidden costs are extremely unpleasant

Incurring hidden costs is never a pleasant experience especially when you are on a budget with no extra money at your disposal. Imagine the look in your face when you buy an expensive home appliance with a promise of free installation and then get charged almost double the standard installation fee because of some paraphernalia used in installation that you thought came along with the appliance.

Now, multiply that look a few hundred times when your company is concerned, as the costs involved would be humongous. A contract by far covers almost all the basic costs which are foreseen, but the costs incurred when the business processes are carried out are accounted under hidden costs, which also entails legal fee, if charged any.

• Confidentiality and security are at stake

A contract usually reserves a company’s right to sue the third party who accepts the outsourced work, if there is a breach of confidentiality, but the damage done cannot be reversed. Highly classified information for a company is what a wedding ring is for girl, if it is stolen, hell hath no fury like a company whose confidential information is leaked.

At the end of the day, no matter how much the company tries to bring down the accused for breaching the contract, there is not much that can be done. The leaked information could be used by the company’s arch rivals and if the information is critical it could completely destroy the company. To avoid a situation like this vital information must not be passed on to the third party handling the outsourced work.

• Dependence on the financial stability of the other company

Turning over your company’s business operations to another company involuntarily creates a relationship of dependence, this dependence also extends to the financial domain which may not be very welcoming for your company. Usually the financials of any company are unstable and if there are any fluctuations in the financial the work outsourced to the company suffers.

To meet the budget companies can go to any lengths to cut costs which could grievously affect the quality of serves offered by them. Besides, they would always look to make greater profits for which they might resort to employing inexpensive labor and resources to just meet the threshold quality criteria, which is something an in-house team would never do. An in-house team always focuses on the company’s reputation and takes decisions which are in the best interest of the company rather than acting as sole independent unit.

• Untimely deliveries

Most of the parties who accept outsourced work are least bothered by the timeline set by the outsourcing company, more often than not they tend to push the deadlines causing significant delays in the planned scheduled.

The severity of the delays could also invite legal trouble, as the client is least bit concerned with the third party you outsource your work to, it is only concerned with the timely delivery of work, which if not met, could give the client a reason to drag you to the court of law. Needless to say, the right partner for outsourcing is quite important to avoid delays in delivery time frame and poor standards of the output. Such factors can be easily regulated if the same work is assigned to an in-house work force.

• The output is not customer oriented

More often than not, the outsourced vendor pays least attention to your customer base while processing the work delegated by your company, they are mostly concerned with meeting the deadline and reaping greater profits, which is arguably fair since they are a separate organization. Lack of customer orientation may result in sub-standard output which may fail in the market.

Identifying the need of your target audience and catering to it are the basics of marketing, and shoving down pre determined products down the throats of your target audience will earn you a bad reputation and be disastrous for your company. Identifying and catering to your customer’s demands and making necessary changes when and if required is an eclectic marketing mix, it gets difficult to put this mix to use if the business processes are outsourced. The outsourced vendor may not understand the need for making the changes and even if it does it may make the necessary changes in the product or services with poor taste.

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