Last Updated on September 13, 2023
The global outsourcing market was valued at $261.9 billion in 2022 and is predicted to surge by 9.4% from 2023 to 2030. However, when companies outsource work, there are both positive and negative impacts on their employees.
The key to understanding these differences is to study the company’s workforce and how outsourcing generally works. So, let’s explore why outsourcing is so popular.
Why do companies outsource?
There are many individual reasons why a company will choose to outsource. But the common reasons to outsource tasks or production are:
- To grow faster
- Retain flexibility
- Gain from the skills of top talent
- Maintain the company’s focus
- Boost brand loyalty
- To fulfill compliance requirements.
However, see the different reasons in the diagram below:
Outsourcing impacts companies in several ways
Why outsourcing? Well, outsourcing is big business. It has been estimated that the global outsourcing market will increase from $150 billion in 2013 to $400 billion by 2020, making it an increasingly attractive option for companies looking to cut costs and increase profits.
However, outsourcing can benefit companies in other ways than cost savings and profit increases.
For example, many companies have found that outsourcing has increased productivity and employee satisfaction by focusing on core competencies rather than non-core processes or tasks (such as office cleaning).
One of the most widely discussed impacts of outsourcing is its effect on employee competence.
Outsourcing can harm employee competence.
This is especially true when companies outsource their most technical and specialized jobs, such as software development or graphic design.
In such cases, it can be difficult for employees to find other opportunities in the same field after being laid off or having their position outsourced.
However, outsourcing can positively affect employee competence by giving companies more time to train new employees and teaching them what they know about the company’s products or services.
Additionally, outsourcing often involves a shift from hourly workers (who do not necessarily need specific skills) to salaried employees who have more responsibilities and are expected to be up to date with current trends in their field of work.
Another concern for employees is their salary and the value they bring to the company.
While most people don’t like to talk about it, money is a big issue for many workers. Employees want to be compensated for their work; therefore, companies must be able to afford fair wages.
Companies should also focus on rewarding their workforce in ways other than salary, making employees feel valued besides receiving more money each year.
Rewards could include promotions, bonuses, additional vacation days, or company-sponsored training courses.
For companies outsourcing work, one primary concern is the security of sensitive data.
Because of this risk, it’s crucial for companies that outsource work to protect both the security and privacy of sensitive data.
This can be achieved through encryption, the process of encoding data so that only authorized people can understand it.
Encrypting your most sensitive information makes it harder for hackers to access it if they get their hands on your files.
Encryption also guards against users with legitimate access to your systems but may not be trusted with all sensitive material.
For example, if you hire an agency or contractor to do some work for you, you can give them access only as needed.
Outsourcing can provide liberation from many tasks, allowing workers to focus on more important matters.
Outsourcing can often free workers time to focus on more critical tasks.
This is especially true in a business environment with too many employees and insufficient opportunities for advancement.
If an employee has a skill that is not widely used within the company (such as a software engineer who knows how to operate an outdated machine), he or she could be better served by taking on different responsibilities elsewhere; or switching companies entirely.
This can also apply to mundane tasks like data entry or phone calls: if you don’t need someone on staff doing that work, why have them there?
Furthermore, outsourcing can provide liberation from tedious tasks so that employees may take part in projects they find more interesting.
For example, if writing copy for your marketing strategy isn’t your thing, but talking about it is—you’ll want this freedom from your daily routine!
There are both positive and negative impacts of outsourcing on a company’s workforce.
The impact of outsourcing on a company’s workforce depends on the situation.
In some cases, it can have a positive impact by helping increase efficiency and improve customer service while saving money.
It can also have a negative effect if jobs are lost or job security is compromised.
In other cases, outsourcing may benefit your business: For example, you can outsource work to a source that specializes in providing services cheaper than your company can do internally (e.g., manufacturing or IT).
This frees up internal resources for other projects or initiatives that might otherwise be unprofitable.
This could be because of their low volume/high variance nature — such as developing new product lines based on consumer feedback from focus groups − making them more economically likely to succeed!
Why outsourcing: The bottom line
In summary, outsourcing has many positive and negative impacts on a company’s workforce.
It can provide liberation from many tasks, allowing workers to focus on more important matters.
However, it can also impact worker competence and the security of sensitive data if not carefully managed.
In addition, some employees may feel threatened by outsourcing due to concerns about job security or pay cuts related to offshoring work.
[i] Business Process Outsourcing Market Size, Share & Trends Analysis Report By Service Type (Customer Services, Finance & Accounting), By End-use (IT & Telecommunication, BFSI), By Region, And Segment Forecasts, 2023 – 2030.