Outsourcing- what every managers and accountants should know about it.

Outsourcing has become a global business necessity in implementing the twenty-first century strategy. This is the mechanism that allows organizations to transfer the delivery of services to third parties. Outsourcing is simply obtaining work previously done by employees inside the companies from sources outside the company. i.e running of a modular company/ organization. A modular company provides products, self-contained experts or companies brought together- outsource- to contribute their primary or support activity to result in a successful outcome.

In a bid to remain competitive, especially in this our time of globalization and e-economy, managers and their advisors (accountants) tend to resort to outsourcing. In this article, an attempt will be made to explore the: procedure, advantages and disadvantages of outsourcing. So sit back and flow with me. Procedure The first step you take in the outsourcing process is to carryout an in-house analysis to find out what your needs are, and then write a RFP (request for proposal) to prospective contractors. This document will serve as an invitation treat. In this document, the company will state the ‘must have’ features of the product or service it intend sourcing. This can be thrown to the general public via any media or selected companies.

When these proposals eventually come in, the company in question will now carry out its due diligence on all the companies that turned in their proposals to ultimately select the company that most fit into their need. Some legal documents needs to be prepared. This represents best practices. SLA (Service Level Agreement) is a common document used. This document states the level of service that must be delivered by the contracted party. Also, a non-disclosure agreement must be entered into as vital top business secrets may be let out to the consultant in most cases. Advantages Outsourcing as a means of creating an agile, virtual organization has many potential advantages:

• It can lower costs incurred when the activity outsourced is done in-house. Companies may decide to outsource their IT function instead of paying a permanent IT staff. You decide which one is more cost effective.

• It can reduce the amount of capital a company must invest in production or service capacity. This is more valid in this dynamic world that we are living in today. The equipment bought today can quickly become outdated, even before producing any output.

• The company’s managers and personnel can concentrate on mission critical activities. Instead of wasting valuable time monitoring production, managers would invest their time in marketing and customer care activities.

• Careful selection of outsourced partners allows the firm to potentially learn and develop its abilities through ideas and capabilities that emerges from the growing expertise and scope of work done by outsourced partner company.

• This concentration and focus allow the company to control and enhance the source of its core competitive advantage.

• Outsourcing increases the chance of the right product and service being delivered. It is most likely that companies will select the best hands and expertise that will in turn translate into high quality output. Disadvantages It is a universal truth that every good thing has its own disadvantages. Outsourcing is not an exception, therefore, below are some of its disadvantages.

• It involves loss of control and reliance on outsiders. Even though there was a non-disclosure agreement, some scrupulous ones might still sell out top trade secret.

• It can create future competitors. A consultant today might turn out to become a competitor tomorrow. For the fact that the greed in man can never be removed entirely, the consultant equipping him/herself with the nitty-gritty of a business or trade may decide to go into it tomorrow. Though this can be circumvented by including a clause in the agreement that forbids them to do so.

• It may cause negative reaction from stake holders – especially the employees and investors.

• It is difficult to craft good legal agreement especially for service engagement. Determining what is satisfactory might pose a big challenge.

• It may become uncompetitive in the long-run. This is especially true hen the company is locked into the contract. As great you may think the disadvantages are, outsourcing will soon attain a height that nobody expects it to get to.

So always be on the look out so as to join the band wagon when it starts moving.

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