Overview

Outsourcing offers several advantages, which include enabling existing staff to concentrate on core competencies, focusing on achieving key strategic objectives, lowering or stabilizing overhead costs, obtaining cost competitiveness over the competition, providing flexibility in responding to market conditions, and reducing investments in high technology. There are also several disadvantages to outsourcing agreements, which include becoming dependent on an outside supplier for services, failing to realize the purported cost savings from outsourcing, locking into a negative relationship, losing control over critical functions, and lowering the morale of permanent employees.

Executive management is increasingly recognizing that sometimes the disadvantages of outsourcing outweigh the advantages, even after an agreement has been signed. Many companies are canceling their outsourcing agreements, renegotiating agreements, or deciding to hire their own staff to provide in-house services once again.

There are all sorts of reasons for having second thoughts, including arrogance or uncooperative behavior of the vendor, competitive advantage in the market no longer exists, costs of the services are too high, quality of the services are inadequate, and types of services are unnecessary.

Unfortunately, many companies could have avoided having second thoughts about their outsourcing agreements if they took one effective action: perform a meaningful risk assessment.

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