Disadvantages of outsourcing for an organisation, Business Management

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Explain FIVE main disadvantages of outsourcing for an organisation.

Surrender of core competence

The services may show (or contribute to) a core competence for the organisation. If this is the case, outsourcing would be inadvisable as the basis of the organisation's competitive benefit could be threatened unnecessarily.

Lack of understanding

There may be a potential lack of understanding of the ethos of the business by the contractors of the outsourced service. There might be resistance from staff groups and unions representing in-house workers whose jobs might be threatened. This may harm industrial relations and possibly lead to disruption in performance. Under these conditions the initiative might be counter-productive. Outsourcing and a threat of job losses could weaken the psychological contract and lead to a lack of motivation within the workforce.

Damage to culture

The move to outsourcing might detract from a positive organisational culture by eroding shared values and goodwill.

Transaction costs

Additional costs will be incurred associated with explaning service specifications and ultimately monitoring performance (so-called transaction costs).

Finality of decision

Once a service has been contracted out it may be very complex to take back in-house at a later date if things do not work out.   

 


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