What are the advantages of outsourcing?

Cutting expenses

Usually outsourcing work will be cheaper than hiring your own permanent staff. This means you cut costs, both in terms of spending less time recruiting ‘the perfect candidate’ as well as cutting your expenses by employing and training less staff and reducing overheads.  

Immediate understanding of your costs

When you use outsourcing for projects, you will know what your costs are to fulfil that project. That in turn will lead to a quicker understanding of your profits and ensure that you can easily control costs and reduce financial risks.

Increased reach

Outsourcing can give you access to capabilities and facilities otherwise not accessible or affordable.

Increasing productivity and efficiency

Outsourcing means you spend less time on the processes that your business doesn’t do so well and frees up your time to concentrate on the processes that gain you the most profit. It also means that your business can earn profit even when your staff are not there (particularly if you can outsource work overseas using different time zones). Of course, it also means that things can be done a lot more quickly by outsourcing a variety of projects at the same time, helping your business increase its productivity and efficiency.

Improved focus on core business activities

Outsourcing can free up your business to focus on its strengths, allowing your staff to concentrate on their main tasks and on future strategy

What are the disadvantages of outsourcing?

Smaller work time overlap 

Especially for remote offices that are far removed geographically, time zone difference reduces the time each day when the team on both sides can communicate with each other. TThis almost always leads to one team being inconvenienced, either waking up a lot earlier or calling it a day a lot later, which tends to build tension between teams over time.

Longer iterations

Especially in cases where product and engineering are in different sites, the product iteration process greatly slows down, on account of each iteration requiring syncing teams on both sides, a process that is made harder by the factors above. I always suggest keeping a product function at the engineering office to make sure quick product iterations can still happen.

Negative impact on staff

Although it isn’t always the case, some employees may find themselves carrying out activities that they deem menial and not so interesting, and their morale may fall. They may conclude that they should be carrying out the work and, if they find out the fees the outsourcing company is charging, they may feel they should have a pay rise or leave and find jobs elsewhere (including outsourcing themselves).

Data Protection and Confidentiality risks

Whilst the written agreement between the parties should set out all the terms of the outsourcing, including responsibilities for data protection and confidential information, it can sometimes be easier to enforce the terms of an employment contract than a consultancy agreement, for example.

Employees not only have written terms of an employment contract, they also have implied terms too which include the duty not to compete with the employer and to keep trade secrets confidential.

Lack of Consistency

Although you can set out written terms of the outsourcing, by using different outsourcing contracts you may find that they are delivered in a variety of different ways and not consistent with your brand. In addition, there may be staff, management or substitution changes within the outsourcing itself which means that your activity is delayed; not consistent with previous work done or not up to standard.

In closing

Offshore outsourcing, although potentially more cost-effective, may present additional challenges such as hidden costs of provider selection or handover, severance and costs related to layoffs of local employees who will not be relocated internationally, etc. Even simply managing the offshore relationship can prove challenging due to time zones, different languages or cultural preferences.