Outsourcing

Outsourcing


 Introduction

Outsourcing refers to the process of contracting to a third party. Outsourcing involves   the contracting out of a business function with another company to provide services that would have been performance in-house employees. Most of the big companies prefer   to outsource jobs like call center services and email services. Also, the companies outsource the payroll. The jobs outsourced are usually handled by separate firms that specialize in each service. Outsourcing is performed inhouse by an external provider. In this case, two   companies can enter into a contractual agreement that involves exchange of services and payment. Recent concern is the ability of businesses to outsource to suppliers in various countries. The businesses carry out off shoring also called offshore outsourcing. Outsourcing has become common in many countries. This is because most businesses are not able to develop products from scratch. This paper analyzes outsourcing. It analyzes new learning that have happened. It also analyzes issues in outsourcing and application of new learning.


 Discussion

Outsourcing has become common in different countries. Most businesses have opted to outsource their services. There are various reasons why businesses have opted to outsource their services. First, businesses have opted to outsource their work so as to save   costs. Most people argue that outsourcing helps lower the overall cost of services to the businesses. This mainly involves reducing the scope and defining the quality levels. It also helps in re pricing and re negotiations. Outsourcing helps business access lower cost economies via off shoring. For instance, businesses in developing countries can outsource   their services to businesses in developed countries. On the other hand, businesses in developed countries can outsource their services to businesses in developing countries (Hormozi, Hostetler &Middleton, 2003).


 In addition, outsourcing enables businesses to focus on developing the main business. Various resources in the organization like investment, people and infrastructure are used   to develop the core business. This makes it easy for the company to improve productivity. For instance, organizations outsource their IT support to IT accompanies that have specialists. Also, outsourcing helps in restructuring cost. Operating leverage is used in business to compare fixed costs to variable cost. Outsourcing helps change the balance   of the ratio. Outsourcing enables the company to move from fixed cost to variable cost and also makes the variable cost more predictable, hence reducing the operating   leverage ratio. Moreover, outsourcing helps improve quality. Most businesses have opted to outsource their services and products to improve quality. This is because the businesses do not have the right resources to develop quality products. Outsourcing the product to another company helps improve the quality as the company has the right   resources to develop high quality products. Outsourcing enables a company to access   knowledge. The company is able to access intellectual property, experience and knowledge from third parties. This makes it easy for the company to develop quality products. It also makes it easy for the company to reduce the manufacturing time, hence   high production (Hormozi, Hostetler &Middleton, 2003).


 

Further, in outsourcing service are provided in form of legal binding contract that has   financial penalties and other punishments for breaching the contract. In contrast internal services are not provided through a legal binding contract. So, there are no financial penalties and punishments for breaching the contract. So, in outsourcing its difficulty for the third party to breach the contract, hence the company is assured of the products and services. In outsourcing, a company is able to access operational expertise that would be difficulty to develop in the company. Developing operation expertise is time consuming   and needs a lot of money. This makes it difficulty for the company to develop the right products and services. Thus, outsourcing helps overcome such challenges. Additionally, in outsourcing a company is able to access a wide range of talents and sustainable skills in different fields like engineering. This makes it easy for the company to offer quality   services. Also, outsourcing is considered the best method for capacity management of services and technology. This is because the risk in providing capacity is catered for by the supplier. This prevents the firm from facing risk and closure (Hormozi, Hostetler &Middleton, 2003).


 Outsourcing can be used to bring change in the organization. In this case, the third party becomes an agent of change in the organization and stimulates change in the   organization. Apart from bring change in the organization; outsourcing can be used to   improve capacity for innovation in the organization. Companies prefer to use external   knowledge service providers to enhance product innovation in the organization. This helps the company become innovative and achieve competitive advantage. Outsourcing   also helps reduce the time needed to market the services and products. This is because outsourcing accelerates the development of the products using additional capability   provided by the supplier. Also, outsourcing enables companies to access business   services that can only be accessed by large corporations. In addition, it helps in managing   risks in the organization. Companies can manage some risks in the organization by partnering with an outsourcer. In this case, the outsourcer helps mitigate the risks. Outsourcing helps businesses to get venture capital to venture into other market segments. For example, some countries match the venture capital from the government with private venture capital .This makes it easy for people to establish business in the country using the funds. Outsourcing has tax benefits. Some countries offer tax incentives to improve manufacturing operations so as to overcome high corporate taxes in the country .Outsourcing enables the company to manage its production. Through outsourcing the company is able to manage increase or decrease in production   temporary or permanently. Hence, outsourcing brings scalability in the organization (Di Gregorio,Musteen &Thomas, 2009).


 

Outsourcing has become a major issue in the country. People have different views about outsourcing. Some think has more harm to the country and the organization. Others think outsourcing has a lot of benefits. First, outsourcing has led to high   unemployment rates in many countries. Firms outsource their work so as to get   enough expertise to develop the product or services. The companies depend on cheap   labor provided by the country. This leads to creation of jobs in the country the   services are outsourced. On the other hand, outsourcing leads to loose of jobs in the home country. This in turn increases the unemployment rate in the country .For instance; most people in United States including the government have criticized outsourcing. Most people think that outsourcing affects economic growth in the country adversely. It also affects the labor force. A  study  carried out in 2004 by Zogby International showed that 71%  of the citizens did not  support outsourcing as  it  affected the labor force in the country and  economic growth.62% of the  participants argued that  the government should  establish laws  to prevent   outsourcing. Other issues include confidentiality and security issues.


Outsourcing   exposes the company’s information, hence affecting confidentiality. This happens   when companies outsource services like payroll processing services and tax   preparation services. The outsourcer is able to access the company’s information. This affects security in the organization. In addition, outsourcing makes it difficulty   to manage the offshore provider. Another issue is managerial problems. Most companies are not able to manage the outsourcer the way they manage their businesses. Also, the company can loose its products or services if the outsourcer   becomes bankrupt. This leads to huge looses in the organization. The success of the business always depend on the success of the outsourcer, hence this can lead to   redundancies in the organization. Companies can loose control of their property through outsourcing (Di Gregorio,Musteen &Thomas, 2009).


 There are new leaning in outsourcing that have happened for the last two decades like offshore outsourcing.  Offshore outsourcing involves hiring an external organization to carry out various business functions in a country rather than the country where the products are developed. In off shoring functions are performed   in a foreign country by a foreign company. The recent growth in offshore outsourcing has led to development of new areas. Examples include Information  technology   outsourcing(TO)  and business  processing outsourcing(BPO).Others  include offshore software development(software R&D) and knowledge process  outsourcing(KPO).Information technology outsourcing involves  the  outsourcing of  computer and  internet related work like programming to other companies. Researchers have determined how offshore outsourcing can be applied in finance, customer care and manufacturing. At  first, only IT  companies used outsourcing  to  improve  their  services  and  products, but now  many areas have embraced  outsourcing so as to improve their services. In  early  days, Business   process  outsourcing included outsourcing  of  processes  like payrolls, but  it  has  grown  to  incorporate other  things like employee benefit management etc(Hunter &Cooksey, 2008).


 The new learning can be applied in different areas like health care, businesses, governments etc. For example, most businesses like mobile companies have applied business process outsourcing in their activities. Businesses process outsourcing is a form of outsourcing that involves contracting of businesses operations and   responsibilities to a third party. Businesses process outsourcing is divided into two sections. That is back office   outsourcing and front office outsourcing. Back office outsourcing consists of business   functions like human resource, finance and accounting. Also, front office outsourcing consists of customer related services like call center services. Most businesses can   integrate front office outsourcing and back office outsourcing so as to improve their services. In this case the businesses outsource their human resource and also tax processing services.


In addition, the businesses can use business process outsourcing to manage their call centers. Integration of business process outsourcing in the company will help provide innovative and value added applications and services that fit customer needs, hence this will improve customer satisfaction. It can be used to improve inbound call center and out bound call center. An outbound call center is used to handle outbound   calls. That is calls that are not initiated by the customer. An inbound call center is used to handle calls that are initiated by the customer. Business process outsourcing helps   companies manage both outbound calls and inbound calls. This increases productivity in the organization. Most services offered by business process outsourcing are provided on a   fee for service basis. This helps improve flexibility in the organization as it transforms   fixed costs into variable costs. A variable cost is important as it helps firms respond to   changes in required capacity without investing in asset (Hunter &Cooksey, 2008).


 Moreover, the offshore software development outsourcing can be used to develop software’s in the organization. The offshore software R&D outsourcing allows external suppliers positioned in a different country to provide software development services. This   can be used by IT firms to improve the quality of software developed. They can also use the method to improve production in the organization. The offshore software R&D is   at its early stages of development in many countries, expect India .Most businesses in India have applied offshore software R&D in software development. Apart from IT firms, other businesses can use off shore software R&D to develop different software’s in the organization. This helps improve businesses activities in the organization. For example, health care organizations can use the method above to improve their software’s and develop new ones. Information technology outsourcing can be applied in the organization. The information   technology outsourcing allows companies to outsource computer and internet work to other firms. For example, the companies can outsource programming. Most companies   have embraced technology outsourcing to improve business functions in the organization (Hunter &Cooksey, 2008).


 Lastly, knowledge process outsourcing can be applied in marketing research. Most organizations carry out marketing research so as to improve marketing in the organization. However, most of thefirms have found it hard to get correct information, hence poor strategies. The knowledge process outsourcing will help overcome such challenges. Knowledge process outsourcing allows knowledge related activities and   information related activities to be carried out by employees in a different firm. Most   companies in the market research industry have realized the benefits provided by knowledge process outsourcing like increased productivity (Hunter &Cooksey, 2008).


 There are various activities that facilitated understanding of outsourcing. First, the instructor used the building background method to allow students to build background. This helped students understand outsourcing. Also, the teacher used hands on experiments and learning activities to help students understand the content. In addition, the teacher used the teacher used real life examples to illustrate concepts and demonstrate how outsourcing is carried out. The activities helped understand outsourcing (Hunter &Cooksey, 2008).


 Conclusion

Though outsourcing has several disadvantages, it has a lot of benefits. It helps improve   the quality of services by accessing technology and expertise. It also helps mitigate some risks in the organization. Outsourcing helps businesses venture into other market segments as they get capital. There are various issues in outsourcing. For example, outsourcing has led to loose of jobs and poor economic growth as companies export jobs. It has also led to loose of management in most companies. In addition, it affects   confidentiality and security in the organization as the outsourcer is able to access information. There are new learning that have taken place in outsourcing like offshore outsourcing and off shoring. The learning can be applied in organizations like businesses to improve productivity and quality of services.


 Reference

Di Gregorio,D.,Musteen,M.,&Thomas,D.E.(2009).Offshore outsourcing as a source of international competitiveness for SMEs.Journal of International Business Studies, issue 40, 969–988.

Hunter,J.D.,&Cooksey,R.C.(2008).The decision to outsource: A case study of the complex interplay between strategic wisdom and behavioral reality.jourfnal  of  management and  organization.

Hormozi,A.,Hostetler,E.,&Middleton,C(2003).outsourcing information technology: assessing your options. SAM Advanced Management Journal, Vol. 68, 2003


 

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