Why Outsourced? What are some of the Advantages and Disadvantages of Outsourcing?

In today's highly competitive environment, the Head of Finance or Accounting is pro-actively working together with top management to aggressively pursue ways to achieve efficiencies, improve customer services and save money. It is a continuing trend of finance transformation role from a low value transaction service provider into higher value added service provider.

It is therefore not a surprise that outsourcing option will poise to be one of the financial strategy of the company. This is particularly applied to non-core business processes & activities and related labor and resource intensive tasks.

What really is Outsourcing?
Outsourcing in general can be defined as passing of service provision or production to another internal or external party.

With Outsourcing, we seek the following advantages or benefits:

1. It reduces the dependency upon internal resources and increases the flexibility to meet the changing business and commercial conditions,
2. It facilitate best-of-breed implementations,
3. It reduces capital expenditure over a business process.
4. It's a way to manage costs and convert fixed assets to variable costs - while staying abreast of new technologies.
5. It brings predictability and reliability to the management of information technologies. It offers the advantages of converting fixed costs into variable costs without sacrificing service quality.

As stated above, Outsourcing allows management to meet the challenges of today’s global economy.It is a powerful management tool to meet several critical success needs in today's global economy. These include speed to market, a standardized global presence, overcoming skill shortages, and coping with trends like the rise of e-business, deregulation and privatization.

Perhaps some of the disadvantages when deploying external outsourced partners:

• Tendency to loose the managerial control. This happens because it is harder to manage the outsourcing service provider as compare to managing one's own employees,
• Might tend to under-estimate the potential hidden costs of outsourcing like legal costs of putting together a contract between companies and time spent on coordinating the contracts.
• It can prove to be a threat to the security and confidentiality of issues of a company. If your company is outsourcing business process such as payroll, confidential information such as salary will be known to the outsourcing service provider. Therefore one must be very careful in choosing which business process to outsource and which one not,
• Outsourcing may also result into the possible loss of flexibility in reacting to changing business conditions, lack of internal and external customer focus and sharing cost savings.
• Loss of internally generated talent is yet another problem associated with the outsourcing as it may hamper the growth of an employee by depriving him from the experience he would have gained by handling the business issue himself then by passing it over to some other external party.