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Top Reasons Why Companies Outsource

Traditionally, outsourcing is defined as strategically utilizing outsourcing resources to perform job duties and activities that would traditionally be handled by internal resources and staff. 

Companies often contract major services from valued business partners that have areas of expertise or knowledge that may also come at a beneficial cost-saving to companies. 

Why Do Companies Outsource?

Many businesses choose to outsource certain functions. These are the seven most common reasons why companies outsource:

  1. Reducing and controlling overall operating costs
  2. Gaining access to unique expertise outside of the immediate organization
  3. Improving the company’s focus
  4. Freeing internal resources to do other types of work
  5. Maximizing the use of external resources
  6. Increasing efficiency or streamlining time-consuming tasks
  7. Sharing risks with a partnering company

The Downfalls of Outsourcing

Outsourcing isn’t always productive or positive. In fact, companies have to weigh the advantages or disadvantages of outsourcing, which can also prove to be challenging to manage. The following are the most significant reasons why outsourcing could prove costlier or fail. 

  1. Existing employees may feel threatened or as though they are disposable
  2. Staff redundancies
  3. Communication problems that relate to language or time zones
  4. Issues with service or product quality
  5. Loss of control over procedures and policies
  6. Data security threats

What Companies Outsource

Outsourcing gained rapid popularity in the 1990s when many companies began using it to help save money. Most jobs that were initially outsourced were customer service-related jobs, such as call centers. Today, outsourcing has rapidly grown, and now financial services, IT, retail services, manufacturing, pharmaceuticals, software and computer technology jobs are often outsourced by companies. 

How to Successfully Outsource

Thirty years ago, the most common reasons companies outsourced were to reduce their headcount and overall costs. Today, more companies outsource to help add value to in-house services, especially when they don’t have employees that specialize in certain areas of service. To successfully outsource, companies must:

  • Have a strategic plan and vision
  • Carefully select vendors
  • Clarify company objectives and goals
  • Structure vendor and subcontractor agreements
  • Practice relationship management
  • Have open communication with stakeholders about outsourcing
  • Pay attention to personnel issues that may arise
  • Have a short-term financial justification for outsourcing
  • Have the support and involvement from senior leadership

Avoiding Failed Outsourcing

Most outsourcing contracts are canceled or renegotiated within three years. It’s vital that companies and executive management work to help foster and support an ongoing relationship with outsourcing teams and companies to avoid this economic loss and the time spent finding new outsourcing options. 

Senior management should regularly meet with outsourcing teams to discuss expectations and identify and resolve any challenges or problems that arise during the working relationship. 

By implementing these strategies and focusing on the end goal, which is to produce better products or services for your customers, companies can have productive, long-term outsourcing relationships.

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