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Modern Mode of Business: Outsourcing of Services: Features, Merits and Limitations of Outsourcing of Services
Outsourcing of Services
- Another important trend in business, of late, has been ‘outsourcing’ of some of its activities i.e.. , use of outside sources to perform activities traditionally handled by internal staff and resources.
- Many companies have started entrusting these tasks to outside agencies on contractual basis.
- Outsourcing is a management strategy by which an organization contracts out its major non-core functions to specialized service providers with a view to benefit from their expertise, efficiency and cost effectiveness, and allow managers to concentrate on their core activities.
- Outsourcing the operation of IT systems has been supplemented by a move to outsourcing the whole business processes such as payroll processing, cheques processing
- This is known as BPO (Business Process Outsourcing) .
Features of Outsourcing of Services
- It involves contracting out an activity to an outside specialized agency which takes complete responsibility to handle it effectively using its own manpower.
- Outsourcing is done in case of non-core activities such as housekeeping, security
- There are two main forms of outsourcing the business processes
- Outsourcing to a thirty party
- Outsourcing to its own subsidiary company specially formed to handle a specific activity
Merits of Outsourcing of Services
- It provides an opportunity to the organization to concentrate on areas in which it has core competency or strength.
- It helps better utilization of its resources as the management can focus its attention on select activities and attain higher efficiency.
- It helps the organization to get an expert and specialized service at competitive prices leading to provision of improved service and reduction in costs.
- It enables expansion of business as resources saved from outsourcing can be used for expanding the production capacity and the product line and seek new markets.
- Apart from financial returns
Limitations of Outsourcing of Services
- It may be opposed by labour unions who feel threatened by possible reduction in their strength and prospects.
- It reduces confidentiality as outsourcing involves sharing a lot of information with others.
- Globalized outsourcing at times causes resentment in the manpower of the home countries who feel threatened by increased competition.
- The organization hiring others may face the problem of loss of managerial control because it is more difficult to manage outside service providers than managing one՚s own employees.