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Monday, 11 July 2011

OUTSOURCING INDUSTRY - Advantages and Disadvantages

The main motive behind business process outsourcing is to allow a company to invest more time, money and human resources in core active items without losing quality and name. Thus, cost advantage followed by increased ability to focus on core competencies is the major driving factor. Other advantages for a firm include:

Ø  Improved efficiency and operational performance;
Ø  Productivity improvements;
Ø  Access to expertise and superior competency;
Ø  Operational cost control;
Ø  Improved accountability;
Ø  Shorter project delivery times;
Ø  Opportunity to focus on core business concerns;
Ø  Enhanced employment opportunities;
Ø  Handling of miscellaneous jobs;
Ø  Access to newer markets (in case offshoring);
Ø  benefits derived from the experience of the service provider;etc.

Thus, business process outsourcing assists in increasing a company's profits as well as shareholder value. Software companies are trying new avenues through business process outsourcing to increase their revenues. Outsourcing helps convert a fixed cost structure into a variable one and allows for more flexibility in handling of business related uncertainties.

Some of the major risk factors involved in outsourcing are:
Ø  Service expectation mismatch;
Ø  Lower than anticipated cost savings;
Ø  Data theft;
Ø  Intellectual property protection;
Ø  Higher training costs;
Ø  Monitoring costs;
Ø  Compromising confidentiality;
Ø  Loss of control;
Ø  Information security;
Ø  Customer dissatisfaction, etc.

In case of offshore outsourcing, cultural mismatch or language barrier can pose a great challenge.

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