List and briefly explain three risks associated with outsourcing.

Risks and Limitations:
∙ Projected benefits versus actual benefits
∙ Service risks
∙ Employee morale
∙ Reduced value
Important Questions to Ask:
∙ Are the anticipated benefits realized?
∙ What are the risks to service levels?
∙ What is the effect on employee morale?
∙ Does outsourcing reduce the value of the organization?

Projected Benefits versus Actual Benefits:
∙ Outsourcing is not as cost-effective and problem-free as expected
∙ 50 percent found that it was more expensive to outsource
∙ Incompatible systems and client demands are the reason for excessive costs
∙ Organizations often duplicate some of the outsourced work for anomalous employees
∙ About 30 percent of outsourcing contracts are not renewed
Service Risks:
∙ Contractual arrangements dictate which services will be provided
∙ Flexibility is compromised to add new features or change service levels
∙ Disruption of service could pose challenges from potential labour relations problems with outsourced organization
Employee Morale:
∙ Outsourcing is a form of restructuring, which creates displaced, resentful, alienated, and anxious employees
∙ Organizations that outsource face a backlash
∙ About one-third of HR professionals resist outsourcing because they worry about:
∙ Losing their jobs
∙ Being forced to work for a vendor
∙ Fear that management believes outsiders are more competent
Reduced Value:
∙ Extreme levels of outsourcing hollow out a company
∙ An organization experiences a reduced capacity to generate profits or innovate
∙ The internal image of HR may deteriorate
∙ Up to 20 percent of outsourced HR functions are ultimately brought back in-house