Staff outsourcing is a common business practice in the private sector in Western world countries. A recent report showed over 300,000 jobs in the United States get outsourced each year. Not only that, but over 57% of all businesses view outsourcing as a great tool for cutting costs to allow them to focus on posting high ROIs.
This concept is fairly new in Africa, especially Uganda, but there are signs of exponential growth. Regardless, it is possible to quantify the effect of staff outsourcing on the performance of private firms in a given economy.
Organizational performance is typically measured by examining how efficiently a given organization uses equity and resources to achieve its goals. It involves comparing actual results and history to the organization’s goals and objectives.
With that in mind, it is possible to pitch outsourcing strategies against organizational performance by looking at the degree of achievement in production, customer satisfaction, and other technological advantages gained by outsourcing strategies. But for outsourcing to be deemed as successful, companies need to hire successful outsourcing firms.
The following article takes a deeper look at the effect of outsourcing on private organizations, specifically their performance. But it is crucial to first understand the meaning of outsourcing.
What Is Staff Outsourcing?
Outsourcing is a practice that involves delegating select organizational activities to an external entity while still retaining control over management, assets, resources, and the general oversight of the organization. Companies use professional employment organizations to support their HR functions.
There are different types of outsourcing practices. Such practices include professional outsourcing, multi-outsourcing, process-specific outsourcing, IT outsourcing, business process outsourcing, manufacturing outsourcing, and operational outsourcing.
Companies use outsourcing services for HR, accounting, purchasing, administration, and legal business-related activities. Outsourcing is a great strategy to use if your existing staff might lack the capacity to perform such tasks.
This practice is common in both the private and public industries. For instance, governments are known to contract services from the private sector regarding facilities acquisition, planning, construction, and other vital services.
Outsourcing started in the late 1950s, but it wasn’t until the 1980s that this concept was deemed a successful business strategy. The growth of this practice revolved around business specialization and core competency. Since then, outsourcing has had effects, mainly positive, on both public and private organizations.
Outsourcing success can be evaluated by using different phenomena such as access to skilled labor, resource management, cost reduction/ savings, and customer satisfaction, among others.
In Uganda, companies are turning from traditional management practices to outsourcing to improve their competitiveness to boost their revenue while generating more jobs.
What is the Difference Between Offshoring and Outsourcing?
Outsourcing, also known as subcontracting, is the transfer of specific company operations to a third-party provider. On the other hand, offshoring refers to the shifting of particular business functions to a different country other than the parent country. Outsourcing usually takes various forms, none more common than Knowledge Process Outsourcing (KPO) or Business Process Outsourcing.
Think of outsourcing as the delegation of non-core business functions to a third-party firm that specializes in the same, while offshoring as the relocation of an organization’s business functions to another country where the costs of such activities might be lower compared to the parent country.
What are the Positive and Negative Effects of Outsourcing?
Over the last few decades, organizations worldwide have increasingly turned to outsourcing to allow experts to work on activities that were traditionally performed in-house. In doing so, companies have enjoyed improved business operations, performance, and competitiveness. However, has its own set of challenges that can negatively impact your business. Here are the positive and negative effects that outsourcing can have on organizational performance
Positive Effects of Staff Outsourcing on Organizational Performance in Uganda
Outsourcing positively affects organizational performance in the following ways
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Increased Productivity and Efficiency
One of the main reasons why organizations across the world are increasingly considering outsourcing is because such services can be leveraged to allow them to focus on their core competencies. Outsourcing allows organizations to focus on their strengths as the third-party outsourcing firm takes care of other in-house activities. This concentration of organizational strengths leads to improved efficiencies and productivity.
For instance, in Kenya, an East Africa economy similar to Uganda, Microsoft outsourced some of its non-core services to local service providers in the area. Afterward, the company reported growth as the third-party service providers gave better control of Microsoft’s processes. Additionally, outsourcing created a local partnership and built efficiency in this case. For such reasons, you should consider outsourcing services in Uganda to increase organizational productivity and efficiency.
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Quality improvement
Quality improvement is one of the top reasons why organizations contract third-party outsourcing firms. According to a survey done in 2003, quality improvement was one of the top reasons why organizations decided to undertake outsourcing projects. Outsourcing increases productivity and, in the process, improves quality services lowering both the firm’s and consumer’s costs. However, to ensure this happens, firms need to employ firms with quality management systems.
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Cost/ Value Addition
Costs and value efficiency remains the primary explanation for outsourcing. Many firms estimate that costs can be saved while adding value through outsourcing. It is normal for businesses to attempt to improve their productivity, increase quality or customer services. However, businesses attempt to achieve this with cost reduction in mind.
What outsourcing can do for your business in Uganda is improve efficiencies while reducing costs and adding value. When you outsource certain business activities, you allow work to be done at low costs and efficiently. Besides, just like most developing countries, Uganda offers a cheaper alternative to completing certain kinds of work and effectively.
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Improves your competitive advantage
Outsourcing is a prescription tool recommended to firms looking to attain or maintain their competitive advantage. Focusing on your core activities is a great way to increase your competitive advantage as you will focus on your business’s core activities.
Negative Effects of Staff Outsourcing on Organizational Performance in Uganda
Staff outsourcing has the following downsides.
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Confidentiality and Security Issues Could Lead to Costly Lawsuits
Staff outsourcing usually involves complex exchange of data and sensitive information. It involves processing sensitive data that is often held in systems managed by the service provider who could be in a different jurisdiction or market. Such transactions involving security and privacy need to be carefully monitored.
Outsourcing your HR functions might also lead to unwanted releases of sensitive information. During this practice, companies might provide information relating to products, organizational structures, and payroll, just to mention a few. Suppose sensitive data involving bank account numbers, social security numbers, and medical information ends up in the wrong hands. In that case, it could spell disaster for the company and lead to costly lawsuits. For this reason, you should only consider working with reputable and experienced outsourcing service providers.
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Hidden Costs of Outsourcing May Increase Operational Costs
Outsourcing is a great way to increase organizational efficiency and improve competitive advantage. And while different HR service providers charge differently for their services, there are hidden costs of outsourcing that tend to increase the overall cost of the entire operation.
Such costs include unplanned logistics activities, costs of allowances, warranties, and returns, and costs of unplanned or unexpected risks. Additionally, outsourcing firms are known to create lengthy contractual agreements with many clauses that could increase the entire cost of this project.
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Outsourcing often breeds less control which could affect performance
Outsourcing involves delegating in-house operational activities to a third party. As a result, a certain degree of control and management is lost to these companies, especially if the service provider is far away from the client’s organization.
This could ultimately affect the quality of the services if poorly executed because it can be challenging to monitor performance and productivity. However, there are a few measures you can take to manage this risk. They include setting timelines for meetings, finding a transparent service provider, and using the appropriate communication channels.
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Outsourcing could have Negative Effects on your staff’s morale
Outsourcing could negatively affect employee morale, productivity, and corporate culture. Employees are often concerned that contracting tasks outside of the company could put their own positions in danger. This might lower the morale of the group as employees might feel replaceable and might seek employment elsewhere.
Outsourcing could affect employees’ sense of job security and morale towards work. Multiple studies have shown that highly motivated employees are the most productive people at the workplace. So, employees who fear for their jobs might suffer a lack of motivation might also become less productive.
When Should You Consider Outsourcing Services?
You might be wondering, ‘When is the best time to outsource business activities?’ Here are a few pointers that you should consider before hiring outsourcing services.
1. When You Need to Lower Costs
Outsourcing is a great strategy that you can use to lower your operational costs, especially in the midst of a pandemic plagued with negative economic uncertainty. Think of outsourcing of a method to reinvest your resources in business-critical areas as you cut on costs.
2. When You Need to Focus on Business-Critical Activities
In most cases, adding people to your staff to work on parts of other business areas can be daunting, costly, and time-consuming. Attracting, interviewing, hiring, training, and retaining top talent can use up valuable resources, limiting your company’s growth in the process.
Outsourcing service providers help with services outside your core business activities. Regardless of your proficiency in tasks such as accounting and customer care, focusing on your core competencies will give your company room to grow.
3. When Your Company is New and Growing Fast
Start-ups and newly found companies should consider outsourcing services. Growing fast often comes with many challenges, and most organizations find themselves requiring help from third-party service providers.
4. When You’re Getting Overworked
Businesses today have numerous operational activities. According to a recent survey, about 88% of CFOs of small and mid-sized companies reported that they had little time for strategy because most of their time was spent administrational and transactional activities such as accounts payable and accounts receivable.
Instead of focusing on non-core tasks, you should consider handing them over to an outsourcing company to allow you more time and energy to focus on strategies that will drive more business.
Verdict
Staff outsourcing is a great business strategy that businesses use to reinvest more time and energy in core business activities. Other benefits that you stand to enjoy from outsourcing include access to top talent candidates, faster hiring, workforce flexibility, improved efficiency, and productivity.
As a new or growing company in markets such as Uganda, staff outsourcing could be your best strategy to improve competitive advantage by allowing more time and resources to focus on business priorities. Let the pros handle administrative and operational tasks such as recruiting, payroll, customer care accounting, and other activities.
Are you looking For Staff Outsourcing Services?
Are you in the market for staff outsourcing services? You should only consider a staff outsourcing company with the experience and service packages that meets your needs at a reasonable cost. We would like to work with you on your next project. Feel free to contact us at Flexi Personnel for staff outsourcing services and other HR solutions.
