Question

Question:

What are some arguments in favor of outsourcing? What are some arguments against outsourcing? How has the argument for outsourcing changed in the wake of the COVID-19 pandemic?

Your answers will be short essays and should be three full paragraphs or longer.

Answer 1

The key argument for outsourcing has always been lower operational costs and labor costs. Outsourcing frees key internal resources otherwise engaged in time-consuming no-core activities leading to focus on core functions and will hopefully lead to innovation. Outsourcing puts a company in touch with world-class capabilities and knowledge your outsourcing partner has to offer and could be a great learning opportunity for the company. The lower cost incurred due to outsourcing could lead to the saving of capital which could be deployed for more meaningful projects.

The major argument against outsourcing is quality control. It becomes difficult to control the quality when work on not done on your site or sometimes in your country. Outsourcing would mean sharing information, design, forecast, and other business knowledge with the vendor. Confidentiality breach remains a risk in outsourcing. Also, if a mistake made by your outsourcing partner harms your customer, you become liable for damages incurred. Another risk is that you become dependent on your outsourcing partner once you offload that work. If your supplier no longer wants to do your work, or they go out of business it will be very difficult to find a new supplier in time or develop those capabilities in house.

COVID-19 disrupted operations for many leading organizations in the world. Where few companies had to re-shore their offshored activities or completely moving away from needing humans at all using technology. Complete outsourcing of processes that effectively required for day-to-day operations may be a thing of the past due to COVID-19. Firms will see value in maintaining in house capabilities to some extent. Cutting costs won't remain the primary driver of outsourcing. Firms may see value in outsourcing to multiple firms (geographically dispersed) in order to reduce risk although it might come at an economic cost.