Benefits and Risks of Outsourcing

Exracted 23JUN2012 from

...outsourcing is a good business strategy. It improves efficiency, speeds up product development, and allows companies to focus on their “core competencies.” Outsourcing has helped American companies deal with the destructive forces of globalization... Outsourcing leads to the fragmentation and disintegration of the supply chain, inviting new competitors into the industry, and undermining pricing power and profitability more and more activities are outsourced, the supply chain turns from a single integrated process performed within the boundaries of traditional corporations to a fragmented and disintegrated process, a collection of separate and disjointed activities, performed across several independent subcontractors.

...Outsourcing’s unintended consequences extend to company relations with another partner—the customer. If each and every activity is outsourced, customers may feel betrayed... And I will feel even more betrayed if I end up discussing my medical or financial records with overseas strangers.

The bottom line: Outsourcing is a good strategy, but it has unintended consequences that may turn it into a bad strategy. It is the job of the business leaders, not the President’s, to make sure that it won’t happen.