Analysis: Outsourcing Advantages and Disadvantages for Businesses

This report delves into the multifaceted world of outsourcing business functions, presenting a comprehensive analysis of its advantages and disadvantages. The study begins by defining outsourcing and its significance in contemporary business practices, emphasizing the drive for efficiency and competitiveness. It explores the benefits, including streamlining costs through economies of scale, enhancing business flexibility, allowing organizations to focus on their core competencies, improving quality through specialized vendors, and accelerating project completion. Furthermore, it examines the impact on customer satisfaction and competitive advantage. The report also addresses the downsides, such as the potential loss of managerial control, hidden expenses, confidentiality concerns, poor customer experiences, decreased quality, conflicts of interest, exposure of confidential data, and the risk of negative publicity. By weighing these factors, the report provides a balanced perspective on the strategic implications of outsourcing for businesses seeking to optimize their operations and achieve their goals.

Advantage and disadvantages of outsourcing of business functions 1
Advantages and Disadvantages of Outsourcing Business Functions
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Advantage and disadvantages of outsourcing of business functions 2
Introduction
Outsourcing of the business functions is among the effective actions in the contemporary
businesses, given that many organization will attempt to utilize each one of these enhancements
of technology, techniques as well as technologies to provide competent and competitive products
which will gratify the customers (Alonso, Clifton and Díaz-Fuentes, 2015). This predicament is
usable to both partners required, given that each could concentrate on their resources to build the
core competencies and prospective directions of the activity. This could result in the decrease of
the costs on the production of the final product since every part function on it, through its ideal
without using off the additional effort along with investing for the understanding of the new
activity (Alonso, Clifton and Díaz-Fuentes, 2015). In this study it focuses on the advantages and
the disadvantages of outsourcing the business functions.
Project Objective
The purpose of this research is to provide an insight and a discussion of the advantages and
disadvantages of outsourcing of the business functions (Carnahan and Somaya, 2013). The study
evaluate on whether the advantages expected from outsourcing maintenance activities are more
than the associated disadvantages.
Project Scope
This research has focused on the advantages and the disadvantages of the outsourcing business
functions. The research will provide the reader to a much clearer understanding on the issue of
outsourcing of the business functions.
Literature Review

Advantage and disadvantages of outsourcing of business functions 3
Definition of the outsourcing: according to power et al. outsourcing consists of two terms that are
out and sourcing that describes “the act of transferring of the work, obligations and decision
rights to someone else’’ (Carnahan and Somaya, 2013). Organization need to source out work
given that still others who could get it done much cheaper, quicker as well as much better.
Advantages of outsourcing business functions
In the right context and the deployed shrewdly, outsourcing of the business function could be a
god way for the organization to improve on the efficiencies and bolter on the bottom line. The
following are some of the advantages of outsourcing of the business function.
Streamline of the cost of business: The primary cause that explains why the business outsource
the company function would be to decrease on their cost of the procedures. Outsourcing lowers
on the cost through capitalising the comparative benefits along with economies of scale which is
common in the sectors (Chen, Hong, Jiang and Kubik, 2013). It is often expected that
outsourcing can conservatively generate twenty percent saving on the cost to the enterprise
operations (Carnahan and Somaya, 2013). This may be due to that outsourcing has a comparative
cost benefit on the labor.
Improvement of the business flexibility: as a result of outsourcing of the business functions,
organization could enhance their services via taking the benefit of the time zone differentials.
Focus on the core business: the outsourcing of the business enterprise functions allows
organization to concentrate on their know-how along with the central business (Chen, Hong,
Jiang and Kubik, 2013). Whenever a business go outside their expertise, they enter into the
business functions and the procedures which they might not have the expertise relating to and
could possibly take away from the primary focus (Creon, Grover and Teng, 2017). An
illustration, on this is when a grocery store choose in introducing the florist to their operation.

Advantage and disadvantages of outsourcing of business functions 4
Should there be too much concentrate on the section of the company they lose the focus to their
primary business that is the grocery.
Enhanced quality: This may be accomplished by using the vendors that have much more
understanding so they have specialized procedures. Certainly this may be trough contracting out
a cleaning program (Chen, Hong, Jiang and Kubik, 2013). An outside service might have the
resources for employing, appropriate training in addition to facility inspections that could have
never been offered in the event that these types of features were kept in the house.
Focus: certain business could opt to outsource on their enterprise functions to be able to get rid
of the disruptions in addition to force themselves to focus on their core competencies. This might
be attractive advantageous especially to the start-up firms (Creon, Grover and Teng, 2017).
Outsourcing has the capacity to free the entrepreneur from the cumbersome as well as the time
intensive duties, for instance the payroll, to ensure that one can possibly focus on the sales along
with the marketing actions which are most suitable to the business especially in the long run
development and also success of the business (Gonzalez, Llopis and Gasco, 2013).
The things get done quickly. The business has a tendency to outsource the functions since it get
the work performed much quicker. In the event an enterprise continues to be working with the
limited number of the staff members, you may get things completed whole faster by passing time
consuming activity to the freelancer or maybe the external businesses. Furthermore, organization
will continue to work around the clock (Gonzalez, Llopis and Gasco, 2013). This really is a
major benefit of outsourcing the digital work overseas which will be a substantial difference to
encounter in times of the time zones and the holidays.
Higher customer satisfaction scores: The seller agreements usually guarantee a given level of
the quality as well as service which could be harder to handle in house. An example, is an

Advantage and disadvantages of outsourcing of business functions 5
employee who has been called in sick, it is looking to the responsibility of the sellers in
complying with the replacement to the contractual agreement.
The business competitive advantage through outsourcing the functions. It could bring the
flexibility to a business, by turning on the fixed costs into the variable costs as well as freeing up
the capital (Gonzalez, Llopis and Gasco, 2013). Moreover, outsourcing could offer the business
the edge especially when adapting to change the market conditions. Additionally, through
outsourcing of the business functions it has been found that it can free the business to focus on its
strengths (Gonzalez, Llopis and Gasco, 2013). This can be beneficial to the business hence
allowing the employees to concentrate on the main duties and on the future strategies.
Increase of the productivity: outsourcing of the business functions have been found to increase
of the productivity especially through delegating of the functions which are not in your business
core competencies (Willcocks and Cullen, 2013). This will enable the business to increase on the
complete advantages and generate an increased return on the productivity.
The risk sharing: certainly one of important facet of determing the outcome of the campaign is
the risk analysis. Outsourcing numerous business function parts could assist the business to shift
particular responsibilities to the outsourced vendor (Rochester and Rochester, 1995). Given that
the vendor who is outsourced is a specialist, they could anticipate the risk mitigating element
significantly better.
Cost saving: cost saving can be an important aspect of outsourcing the business functions. The
cost saving could offset, setup or the production costs which are associated to the office space
(Creon, Grover and Teng, 2017). These savings frees up the resources which could be used for
other functions in the business.

Advantage and disadvantages of outsourcing of business functions 6
Disadvantages of outsourcing business functions
The disadvantage of the outsourcing business functions are as follows;
Loss of the managerial control: when an organization sign on an agreement to have another
company execute the function of a division or a particular task, you are transforming both the
administration and the control of that function over to the other business (Willcocks and Cullen,
2013). You should have an agreement, but the managerial control might remain in an additional
organization. The company which you are outsourcing the solutions will never be related to the
similar specifications along with the mission which drives your enterprise (Caruth, Haden and
Caruth, 2013). They will be driven to making of the profit from the solutions which they are
providing to you in addition to the other business like yours.
Hidden expenses: the business would probably sign an agreement with the outsourcing firm that
they might cover the particulars of services which they might be offering. Anything that is not
offered in the contract could be the basis for extra charges (Liu and Wang, 2014). Furthermore, it
is possible to experience the legal fees to be able to maintain legal representation to evaluate the
agreements which you will sign.
Lack of confidentiality: This is one of the primary issue with outsource the business function.
The business needs to forego some form of privacy over their primary business secrets (Liu and
Wang, 2014). Furthermore, the company must pass certain data such as the login details, the
customer information along with the critical information of the processes of the business and
safety measures that are undertaken, to permit the outsourcing firm to implement on the task in
hand (Liu and Wang, 2014). Furthermore, the outsourcing organization will also be analysed for
their internal security procedures which might result to data risk which can be stolen or even a
fraud might be committed which leads to the loss of reputation along with the confidence of the

Advantage and disadvantages of outsourcing of business functions 7
client. This risk is high especially in which the financial data continues to be handled for
example the banking information or maybe the credit.
Poor customer experience: an actual and practical danger of the disadvantage of outsourcing on
the business function is the loss in the customer assurance. There is developing variety of the
businesses that are looking to offshore are meant to the foreign staff at a cost that could be a
portion to exactly what the native employees gets (Caruth, Haden and Caruth, 2013). Even with
the extensive training acquired, it has been determined that the customers possess poor
experiences particularly when they are speaking with the foreign English speaking specialists.
This might result in confusion along with misconception.
Decrease of quality: the quality could acts as each a benefit along with a disadvantage within
this discussion. The outsourced enterprise features, unless there is certainly a stiff quality check
in place, they are able to quickly lessen on the advantages which a business initially saw in the
whole idea of the outsourcing (Liu and Wang, 2014). Since all the outsourcing contracts have
been drawn up in advance and there is not much room especially to the leveraging of the price,
outsourcing company might resort to less than legal techniques to permit them generate an
income.
Risk of the conflict of interest: before an organization sign on the outsourcing agreement, it is
important to keep in mind that the service provider could currently be managing similar account
or even the competitor’s ones (Liu and Wang, 2014). An outsourcing service provider will aim at
handling many customer as possibly can. It may be difficult to know who their client are even
after an extensive research and due diligence has been made (Gobble, 2013). The service
providers are bound to other non-disclosure agreement with the other clients. One cannot compel
them to disclose whether they are managing the other competitors. This can pose a risk to the

Advantage and disadvantages of outsourcing of business functions 8
business which could lead being used by the competitor (Schniederjans, Schniederjans and
Schniederjans, 2015). Any data that is given to the service provider it could be used against the
business one way or another without having knowledge of it (Gobble, 2013).
Risk of exposure to the confidential data: trust can become one of the major issue when
outsourcing services since the arrangement entails sharing of the information which is
confidential (Gobble, 2013). The non-Disclosure agreements are some of the usual set of the
document that are used for enforcing it and they can become logistical inconvenience.
A bad publicity and the ill-will: The word outsourcing could bring to mind various thing to
different individuals. In case one lives in a community that has an outsourcing organization and
they employ ones friends and neighbors, outsourcing is good (Kotlarsky, Scarbrough and Oshri,
2014). In case these individuals lost their jobs since they have been shipped across the state or
across the world, outsourcing could bring a bad reputation. If the business outsource their
operations, morale could suffer from the remaining workforce.
Language limitations: In the event that the client call center is outsourced to another country
which converse a complete different language, there could possibly be levels of the discontent
for clients dealing with the language barriers of someone who has distinct accent (Kotlarsky,
Scarbrough and Oshri, 2014).
Organizational knowledge: a worker who may have recently been outsourced might not have
the same comprehending and enthusiasm for the business as comparison to the regular employee
(Dolgui and Proth, 2013). There may be the potential that an outsourced staff member would
interact with the client compared with being as knowledgeable of the business which may result
to the negative client experience.
Legal compliance and security: it is critical that problems in relation to the legal compliance

Advantage and disadvantages of outsourcing of business functions 9
along with security are handled in a formal documentation. The processes that are outsourced
needs to be managed to be able to make sure that there is diligence with the legal conformity
along with the system security (Dolgui and Proth, 2013). An illustration might be the information
technology function and having an outsourced staff utilize their access to the confidential
customer data for their very own gains.
Staff layoffs: outsourcing usually lead to the need to the decrease in the degree of the staff.
Except if it might be organized via attrition, layoffs are unavoidable (Wuyts, Rindfleisch and
Citrin, 2015). This is very difficult at the best and if this is not handled well, it could have an
adverse impact on the remaining staff (Dolgui and Proth, 2013). Additionally, when an
organization is researching vendors to outsource it is important to reflect on your particular
requirements and get at least three requests for the proposal to make sure that the enterprise is
getting the best value for their money .
Conclusion
Outsourcing of the business functions has become one of the widely used contemporary business
practices. However, it has both benefits and drawbacks. While the character of the work in
which the organization operates and aims that it set could change, outsourcing could change on
as well as bring both benefits and risk to the client organization. From the analysis discussed
above on the benefits and drawback of the outsourcing, it is obvious that the practices of
outsourcing the business functions are not similar to all the organization. Several aspect can be
learnt from this literature. If a company is small and has limited resources, then they need to
outsource. Nonetheless, it is important to note that the outsourcing activities cannot always
ensure that common benefits such as the cost reduction are achieved.

Advantage and disadvantages of outsourcing of business functions 10
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Appendix 1:
Figure 1: The diagram shows the benefits of outsourcing business function.