Outsourcing Flashcards
What is outsourcing?
Transferring a firm’s non-core activities to an external provider (outsourcee)
What are the advantages of outsourcing?
> Enables a firm to concentrate on its core activities.
External vendor is a specialist in performing the outsourced business process & thus can perform the same at lower cost.
External vendor provides his expert advise to the firm for better performance of outsourced services.
Firm need not create a separate dept to perform non-core activities & thus lesser investment needed.
For certain services which are required temporarily, outsourcing them is the best option.
Flexibility - easier to cancel a contract than to sell an operation
What are the disadvantages of outsourcing?
> Quality risk because of relinquished control
Quality of service - potential late delivery, incomplete performance.
Hidden cost, potential increased.
Language barriers - language barriers.
Employee/ public opinion - there can negative perceptions with outsourcing & sympathy of lost jobs. Reputation of vendor impacts the firm.
An outsourced employee may not have the same understanding and passion for an organization as a regular employee.
There is a risk that issues regarding legal compliance and security may not be addressed in formal documentation.
Outsourcing commonly results in the need to reduce staffing levels, employee morale drops.