Outsourcing is when one company contracts another company to provide services/jobs, contrary to in-house employees to perform these services/jobs.
Outsourcing Benefits
Reduced expenses Outsourcing can reduce the fixed and the recurrent costs. No payments for health insurance, payroll taxes, sometimes even the equipment per employee and general employees' administrative costs.
Expert services Access to required skills that match the company needs, outsourcing services usually will bring required experience.
Technology availability - Access to the most required technology for the company without the whole costs of developing it in-house.
Expand to another market It is possible to use outsourcing services as local agent in new markets.
Flexibility In many cases that the workload of a company has ups and downs, human resources and machinery/equipment flexibility is necessary. Outsourcing can provide this flexibility when hiring the outsourcing services only when needed.
Business focus Outsourcing enables companies to stay focused on their core business services/products.
Outsourcing Disadvantages
Less control of processes Many times the outsourcing services are a black box which leads to a situation that as a company that provides the complete service/product you do not have control of all parts but you have the responsibility of the complete service/products.
Sensitive information can leak outside Outsourcing services is another link in the chain and might be a weak one, not necessarily deliberately.
Dependency on outsourcing provider The more functions that outsourcing is doing in your business the bigger dependency you have in the outsourcing provider. This dependency is a risk for your business if for some reason the outsourcing provider will decide to change the rules of the game.
Connections with clients might be weakening In case that your customer receives the service from the outsourcing, you lose the intensive direct communication with the customer and this might lead to a decline of commitment level and losing feedback from your clients.
When to Outsource
Companies can make a use of an outsourcing service as a growth engine or as a way to access technology or a way to reduce expenses and costs or a way to reduce administrative overhead in order to focus on business core. Companies should not outsource any strategic role. All strategic roles should be held by in-house employees.
