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Outsourcing involves the transfer of the management and/or day-to-day execution of a business function to an external service provider. The client and outsourced supplier enter into a comprehensive service agreement that defines the responsibilities of each party, the financial arrangements and critically the bonus or penalies for non-compliance.

Why outsource?

‘Does this activity have to be done and do our staff have to do it?’ are two questions that can lead to a decision to outsource.If the answers are ‘yes’ and ‘no’ respectively, then outsourcing maybe the answer.

Outsourcing may also be a way of handling a short-term; increase in transaction volumes; overcoming a skill shortage or avoiding the need to take on extra business space.

Pitfalls of outsourcing

Because of the potential pitfalls, the decision to outsource a particular business activity should be taken at the highest level. Here are some questions to consider:

-Can changes in foreign exchange rates negate the benefit of having work carried out in another country?

-Will outsourcing mean that a particular skill set is lost to your organisation? How easy would it be to hire people with that skill set at a later date?

-If the supplier delivers a lower quality of service, will that impact customers? Does the outsourcing contract pass on the consequences of any service failures to the supplier?

-Are staff of the appropriate skill level readily available to the supplier?

-Are there any hidden issues with the supplier that could suddenly impact your marketplace reputation if uncovered by a journalist (e.g. working conditions, working practices, security, data protection)?

Articles on the Outsourcing Leadership website (http://www.outsourcingleadership.com) may also be useful.

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