by Richard Lloyd Evans

Created on: January 27, 2008

Outsourcing is a popular business strategy. At its best, outsourcing can give a business greater flexibility and productivity for a much tinier cost than if they used their own employees. Businesses that are moving into new fields can tap into the expertise of outsourcing experts to pioneer new paths with tiny investments.

But despite the positives, outsourcing offers short-term savings at the sacrifice of long term success. Business, society and government need to know when outsourcing must be constrained. Here are some things that must be considered.

QUALITY CONTROL PROBLEMS

Most noticeable to companies and especially their customers is poorer quality control. While many outsourcing companies like to market that using their services will actually improve customer satisfaction, in reality it seldom does. Partly this is because the lower pay for outsourcing company workers results in much greater turnover than if the position had been staffed by a business employee. This means constantly training, meaning much lower productivity.

Using outsourcing employees almost always means using less qualified employees who are not part of the business culture. As a result, you may have a telemarketer from India answering your toll free number. Being separated by different hemispheres and cultures is a recipe for mistakes, which occur over and again.

LOSS OF INSTITUTIONAL MEMORY AND CONTROL

When a business does its work in-house, there develops individuals and organizations with important institutional control and relationships. They have seen similar problems over the years and can use their experience to solve new problems. If those tasks are outsourced, however, the business never develops such an institutional memory. The expertise remains with the outsource providers as they come and go. Each time a problem develops, the business is forced to reinvent a new solution to an old problem, potentially losing valuable time and money, while not learning from past mistakes.

LONG TERM ECONOMIC PROBLEMS

This said, the main reason to show restraint in using outsourcing are the long-term economic reasons. Outsourced employees are paid much less than other employees. Broadly lower wages means fewer workers with money to spend and thus drags down the overall economy. Worse, as most outsourced employees have few if any benefits, government and society are normally left holding the bill for health care costs and the like. This sharply expands the need for government funded child care, health care and other entitlement plans, as well as potentially bringing millions of workers into retirement without any worthwhile pension plan.

These forces force workers into poverty, and additional government programs are needed, at higher taxes for businesses.

So, while a business can find some short-term break in expenses by using outsourced services, the long term effects of an economy assaulted by less spending money and higher taxes can have a much greater cost for the future business, government, society and consumer.

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