Companies have been outsourcing functions such as customer service, payroll, cal

Question

Companies have been outsourcing functions such as customer service, payroll, call centers, and some other functions for years. Some of these are outsourced to contractors, some to other companies. Some outsourcing sends work overseas, while others us US based companies to provide services. Consumers, management, and employees often have differing opinions on whether outsourcing is beneficial.

1. Why would a company outsource a business function, such as customer service? What are the risks?

2. Why would a company outsource a human resources function, such as benefits administration or recruitment? What are the risks?

3. What is your opinion of outsourcing work, in general? Do you view it as positive, negative, or neutral? Why?

Explanation / Answer

1) Companies usually outsource their customer service for gaining competitive advantage over their competitors. Well-structured outsourcing arrangements should lead to a more efficient allocation of roles and responsibilities among the parties to the arrangement and, from a customer’s perspective, can bring a range of benefits. Usually companies outsource activities for increased efficiency (which can translate into an important competitive advantage), reduced risk associated with running effective IT departments, controlled costs (by releasing capital for investment in other areas such as revenue-producing activities), increased reach by providing access to world class capabilities that might otherwise not be affordable, better investments, and an improved focus on core business activities. Ultimately, outsourcing should serve to make companies more flexible and agile, ready to meet the challenges of doing business in an increasingly technological and competitive world, while providing cost savings and service level improvements.

Major risk associated with such type of customer service outsourcing includes:

2) Outsourcing Human resource function helps in effective pooling of resources for a particular opening and helps in initial shortlisting process for any job vacancies which would have not been possible in prior case. It also helps the organization to utilize its time in improving the HR practices and work culture in organization solving issues related to employee. Major risk associated with this type of outsourcing is loss of capability of shortlisting individuals for vacancies and sometimes results in cross cultural differences as the joiner is not familiar with the company policies and work culture. Sometime data security is also an issue with this type of outsourcing and may happen that a person might get too much hike than he deserved due to the outsourced party portion associated with it.

3) In most of the cases outsourcing is necessary as the present scenario of the companies mainly include in cost reduction throughout the process with maximum customer satisfaction. Outsourcing not only helps in reduction of cost but also helps in understanding key new problems and their probable solutions which main parent company would not have been able to do so because of non-expertise in such domain. Major things to keep in mind along with cost and customer service is data security and process smoothness. If these two things are keep in tack then outsourcing is a profitable business move.

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