The contemporary business environment has become complex and competitive forcing organizations to be strategic in their internal and external structures in order to effectively survive the storm. With globalization tending to control the flow of international trade, firms are adjusting themselves with corporate strategies that not only involve diversification, but also organizational structures that can effectively allow them to gain competitive advantage in the global market. Indeed, globalization and technological advancement have influenced companies to seek ways of optimal space management, cost effectiveness, optimal human resource capacity and operational efficiency. In this regard, firms have resorted to outsourcing various organizational functions and maintaining only the most sensitive and those that can be easily and competently managed within the firm. Some of the mostly outsourced functions are customer service (help desk) functions, technological supply and maintenance, human resource recruitment, security services and cleaning services among others.
In simple terms, outsourcing may be defined as contracting outside agency for the management of a firm’s operations that otherwise could have been managed through in-house staff (Lock, p. 149). Outsourcing may be beneficial to a company especially in terms of cost saving, production efficiency, knowledge blending, operational flexibility and resource mobilization. However despite these benefits, outsourcing may have damaging impacts on the firm itself especially in terms of quality, customer service and security. This paper wills discus the reasons as to why outsourcing is a bad idea for a company.
Over the last few years, companies, especially the multinationals have embraced outsourcing as a means of restructuring their business. With the current economic crisis biting the global business world, many firms have found an escape route of downsizing to outsourcing causing limited negative impacts that could have been realized through formal downsizing/staff lay off procedure (Hira and Hira, 2008). In addition, many multinationals and transnational have realized the benefit of outsourcing services from developing countries where input costs (labor and raw materials) are cheaper than the developed countries. This has been one of the major contributing factors behind the rapid growth of some developing countries like India and some East Asia and African countries. For example, most American and Japanese auto makers have been outsourcing labor from India due to low salaries thus saving on operation costs. However, low cost is always the case especially when outsourcing specialized skills that require a huge paycheck. In addition some internal processes such as internal audit and payroll management are costly to outsource (Bragg, 2001, 406).
For outsourcing to succeed, the company outsourcing should be capable of validating the outsourced provider’s ability to provide throughput with expected quality, low cost and within required time frame. Where a company lacks adequate processes to validate this, consequences of poor quality, cost and time overruns may result leading to ineffectiveness of the outsourcing process.
Quality of work may feature significantly in the outsourcing process especially where the company outsourcing has no direct contact or control of the company performing the outsourced function. Communication problems between the contracting company and the outsourced company may hinder the efficiency of service delivery, especially considering that the outsourced company needs to perform the tasks with reference to the organizational mission, strategies and goals. It is also worth noting that, the overall responsibility and accountability of the results from the contracted activities lies with the outsourcing company and therefore it should be involved in decision making as well as constant/regular monitoring and review of the progress of the outsourced functions.
Service delivery including customer service may be compromised especially where the customers have to contact the contracted firm for business issues. Where a company outsource call center operations or technical operations from an oversees firm, communication between the company and the customers may be affected especially where the contracted firm has to make reference (which may take time) from the company or wrong information is provided, the customer tends to be less satisfied and may even switch to competing firm in the long run. In this case, outsourcing may lead to loss of customers in the wrong run due to ineffective communication and time overruns.
Outsourcing that involves different countries with different time zones may also be ineffective. This is due to the fact that, the customer who is in the same time zone with company may not get what he/she requires from the company directly but has to wait for odd hours to contact the outsourced firm. This leads to dissatisfaction and lost time on the side of the customer who may as well seek services from a more flexible company. In addition, customer identity and loyalty may be affected as most customers like identifying themselves with the company whose products they are consuming.
Company’s ethical issue also plays a part in the ineffectiveness of outsourcing. Where a company outsources services from outside its area of operation, it shows lack of appreciation to the society that has been part of its growth, and especially where the services outsourced could have been directly sourced from the immediate community. This makes the company to appear unethical thus tainting its reputation as well as eroding the confidence of the local community (Weinstein, 2005). Moreover, the environment that the company operates in is supported by the actions of the community including paying tax for infrastructural development and providing market to the company.
Security risk is one of the major concerns of a company when it comes to outsourcing – this may be information loss risks or physical security risk. Some of the company information should be confidential (Tipton and Krause, 2007). Outsourcing some functions such as accounting, human resource, security services (alarms) requires that the company part with some of its internal information. This may be dangerous in the long run for the company, more so when the relationship between the company and the contracted company breaks down. In addition, the outsourced company may disclose business strategies on the company to the competitors, leading to the company losing the competitive advantage in the market. Firms contracted for security services in the company may also collude with burglars since they have complete knowledge of the company’s security measures.
Although outsourcing may tend to have adverse effects to a company, there are positives that go with it. According to Langer (2009) outsourcing can help a firm improve on service delivery procedures, avail expert and specialized talent, enhance efficiency in operations through cost cutting and adopt new trends in business through regular and timely updates.
The companies engaging with outsourcing should focus addressing the pertinent issues that may arise from mismanaged outsourcing putting in mind the competitiveness in the market. Despite being claimed to be a contemporary solution to the expanding corporate assignments and complexity of the global economy, outsourcing may have long tern disastrous effects on the company if not well managed.