Outsourcing: The Benefits and Challenges

Outsourcing: The Benefits and Challenges

Outsourcing is a fast-growing business practice worldwide and Nigeria is no exception, with many government institutions and companies in diverse industries using business process out-sourcing services, because of it’s enormous economic and financial benefits- a strategy that profits company’s bottom line.

I have been privileged to manage HR Outsourcing for several banks in Nigeria – I was part of the process from concept to implementation and that has given me a clear understanding of its benefits and challenges. It is a viable solution to small and big businesses.

Outsourcing has been variously defined by individuals viewing it from different perspectives. The contents of the contract or arrangements may be different but the concepts remain the same from clime to clime.

Outsourcing is the delegation to an external organization of the performance and management of operations or entire processes that are not fundamental for the clients and are not directly related to their main market activities. It is the business practice of hiring people outside a company to perform services that traditionally were performed within the company- the contract of subcontracting of none-core activities to free up cash, personnel, time.

According to Jonathan Webb, “…outsourcing is about moving internal operations to a third-party…. in the form of selling physical plant to a supplier, to buy back goods or services, or shifting an entire business division to a third-party and again buying the service back. The basic philosophy being: To move transactional activities to the experts in order to give an organization the capacity to focus on its expertise”.

It is one of the business models designed to create jobs but less of it is coming from Africa.  Africa as a continent has the potentials to out-grow this in the nearest foreseeable future. The Outsourcing Professional Association of Nigeria (OPAN) believes that “the future for Nigeria, job creation business-wise, the growth of the economy is in outsourcing… outsourcing is the way out for Africa, not just Nigeria…”

In outsourcing, the external service provider performs and manages a specific business function, while simultaneously contributing to its development and improvement. Examples of frequently outsourced services include HR, Payroll Processing, Power & Electricity, Accounting, Information Systems Maintenance, and Support, Training, Fleet Maintenance, Building Maintenance, etc.

The Benefits:

The benefits of outsourcing are great. It:

• Allows organisations spend more time concentrating on core business processes.
• Gives company access to professional, expert and high-quality services.
• Enables organisation experience increased efficiency and productivity in non-core business processes.
• Lets company streamline their business operations.
• Helps Company save time, effort, manpower, operating and training costs, thereby giving her overall cost advantage.
• Increase flexibility to meet changing business and commercial conditions                                                                      • Experience increased control of Company business.
• Saves Company on investing in latest technology, software and infrastructure and enables the external contractor handle the entire infrastructure.
• Gives organizations the assurance that her business processes are being carried out efficiently, proficiently and within a fast turnaround time.
• There is always buffer to draw from in cases of emergencies                                                                                        •Company can save on team management problems as her offshore partner will be managing the team who does her work.
• Allows Companies to provide 24/7services to her clients                                                                                                • Gives access to high-value talents and skills                                                                                                                    • Enables the company to cater for the new and challenging demands of her customers.
• Free up the cash-flow of the company.
• Share her business risks.
• Gives the Company business a competitive advantage – increase productivity in all the areas of her business.
• Can help organization cut its operational costs by 50% or more.

CHALLENGES:

• Does not give the outsourced employee the required confidence to stay on the job for long as they feel inferior to     direct Company employees                                                                                                                                          •The rate of labour turnover is high as there is no job security for outsourced employees                                                •Exposure of confidential information to outsourcing partners could be a security threat;
• Company might find it difficult to manage the offshore labour provider when compared to managing processes within your organization.
• It can create potential redundancies for your organization and your employees might express lack of interest or lack of quality at work.
• Outsourcing staff provider might be catering for the needs of several companies and may not be able to give your company 100% attention.
• Outsourcing, though cost-effective, might have hidden costs, such as the legal costs incurred while signing a contract between companies. You might also have to spend a lot of time and effort in getting the contract signed.
• Organization might suffer from lack of customer focus.
• There can be several disadvantages, such as renewing contracts, misunderstanding of the contract, lack of communication, poor quality and delayed services amongst others.

Before venturing into outsourcing as a Company, there is the need to consult experts.

Contributed by Agolo Uzorka, Vice President, Eugene+George Consulting

 

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