Benefits of Outsourcing in Business Management.

Economies of Scale.
Outsourcing organization carries out activities on full time basis and at possibly at much larger
scale than their clients. They may have economies of scales and have specialist able to bargain
discounts and work efficiently better than their client. Some extent of these benefits they may
passed to their clients to gain business.

Planning and Budgeting.
Cost can be known in advance reduces uncertainties in planning and budgeting. Future cash
flow requirements can be better anticipated.

Realization of Surplus Assets.
Outsourcing can make some asset idle which can be used deployed elsewhere or can be sold to
realize cash flow which contribute towards the improvement of liquidity position.

Elimination of Limiting Resources.
Outsourcing organization may have larger capacity which can be used in line with other
activities of the business.

Reduced Overhead Costs.
Outsourcing organization may be ready to provide services based on variable charges hourly or
per unit basis.

Experience and Expertise.
It is possible that outsourcing organization has specialist knowledge; skills and equipment
enable them to provide better quality services.

Focus on Core Activities.
It will reduce managerial workload allowing them to focus on core competencies and delegate
areas on which they lack competencies and resources to some competent outsourcing
organization.

Limitations of Outsourcing in Business Management.

Loss of Control.
Outsourcing organization may be remote from business current location, frequent visits are not
possible and communication through reporting are not sufficient to exercise control. Core
activities should not be outsourced unless impracticable to do in-house. Any incompetency
identified by market can be threatening to the reputation of the business.

Lack of Independence.
Business may became dependent on outsourcing organization, because of loss of competency
and resources in the business due to employees being redundant or deployed elsewhere and
assets are sold which now require more investment to buy again. In case of breach, it will be
difficult to setup activities immediately. Delays to setup activities again can damage reputation
and cash flows.

Employee Morale.
Employee may lost their skills overtime and resentment can happen if outsourcing leads to
forced redundancy. It can seriously impact productivity because their will be little motivation
regarding promotion and growth. In extreme cases it may end up with strikes.

Cost May Exceed Benefits.
There may be cost associated with employee redundancy payments, early termination
penalties of existing contracts and disposal cost of property, plant and equipments. Benefits
determined from outsourcing are future expectations which may not come true. Like savings in
step fixed costs of energy and supervisory costs due to reduced activity level.

Reaction of Stakeholders.
Stakeholders may react positively or negatively depends how they perceive the impact of
outsourcing on their interest in the business. Some stakeholders may become happy while
some may become sad.
These include shareholders who may sell their shares can affect the share price, financers who
may demand repayment of the capital, customer who may take their business elsewhere and
supplier who may change their business terms depending upon their perception of business
future risk.

Legislation.
Legislation may limit dealing in foreign countries to protect its currency value or dealing
with rival countries. It may protect some stakeholder rights by enforcing legislation e.g.
imposing high import duty to protect home industries or by imposing licensing requirements to
business operating in particular industry requiring some activities or standards which are pre-
requisite to get a license.