Not long ago a colleague asked me to describe the “Pros and Cons” of outsourcing. I have a lot of experience in this area, but found it difficult to provide a quick and concise answer. After giving it some thought, here is what I came up with.
For starters, the range of business processes that are being outsourced continues to expand. Some of the common functions include:
- Customer Care
- Contact Centers
- Research Services
- Finance and Accounting
- Human Resources
- Healthcare Services
- Back Office Transactions
- Supply chain management
- Information Technology
Within these categories there can be dozens of sub functions! For example, Finance and Accounting could include: accounts receivable, fixed asset accounting, financial analysis, financial statements, internal audits, accounts payable, general ledger, management accounting, consolidations/eliminations, unemployment processing, T&E Management, account reconciliation, cost accounting, variance analysis, taxes, payroll, bookkeeping, budgets and forecasts, statutory reporting, credit management, capital planning, external audit support, foreign exchange, cash management. The list goes on!
As you can see, it would be difficult to come up with a meaningful list of pros and cons.
Instead, I think it is appropriate to look at outsourcing as just another management strategy or tool, rather than a program with “pros and cons”. And, like any other tool in a manager’s toolbox, if used properly the outcome is generally good. But if the tool is misused….well, don’t blame the tool.
So, another approach is to assess the potential benefits of outsourcing as a business strategy. Each company’s situation is unique, but if most of these questions can be answered affirmatively, there is probably measurable value in outsourcing the function under consideration.
- Am I clear about what I want to achieve with outsourcing?
- Will costs be reduced or variabilized?
- Can quality standards be met?
- Will outsourcing facilitate scaling the business?
- Will outsourcing facilitate more management focus in other core/priority areas?
- Are you confident you have a team and partner that can execute the outsourcing goals?
Having said that, I believe there are some cases where outsourcing is NOT a viable strategy. The list is short, but I would not consider this strategy if the work is not labor intensive (or can be automated), highly specialized skills or deep internal domain knowledge is required, or if there is high risk of negative reaction in the market.
The continued rapid expansion of companies using outsourcing as a business strategy tells me that it has a lot of value in many, but not all cases. What is needed is an objective assessment of the company’s unique situation. I think this is a better use of time than creating a list of pros and cons that might be highly debatable.
My colleague was satisfied with my answer; even if it took longer that he had wanted.
I hope you will add your perspectives.