Risk Management Model for Outsourcing-Free-Samples for Students

Question: Discuss about the Advantage and disadvantage of outsourcing Business Functions. Answer: Introduction Business process outsourcing can be defined as contracting out few business processes or functions to the third party (Mohr, Sengupta and Slater 2009). These functions or processes can be outsourced to a company or an individual. The company to which function or process is outsourced is known as the vendor company or outsourcing partner. Businesses usually go for outsourcing to focus on their core processes and functions in which they have expertise. Outsourcing helps the business to contract out less relevant processes or functions to some other individual or organisation; this gives competitive advantage to the frim. Outsourcing can be permanent or temporary depending upon the need and contractual obligations. Few common aspects that businesses outsourcing include marketing research, human resource, legal affairs, customer call centres, manufacturing, information technology, payroll processing, and facility management (Schniederjans 2015). Outsourcing can be of many types such as m anufacturing outsourcing, professional service outsourcing, process specific outsourcing, offshore outsourcing and operational outsourcing service. Outsourcing has various implications on both the companies the one who outsources and one who does the work. The various potential positive and negative implications of the company shape up the outsourcing decisions of the firm. This report analyses various advantages and disadvantages of outsourcing business functions. Objective of the project: The study was undertaken with the following key objectives- The meaning of outsourcing The project report aims to identify and clearly understand the concept of business process outsourcing. Various advantages of outsourcing business functions The main goal of the study is clearly identify all the potential advantages that firm can gain if it outsources its functions or processes. Various drawbacks of outsourcing business functions The study also aims to identify various drawbacks associated with the outsourcing of business processes and functions. Role played by benefits and risks in taking the outsourcing decision The report also aims to identify how potential benefits and drawbacks shape up the outsourcing decision of the firm. Scope of the project: Globalisation is on rise in recent decades. To be successful in globalised environment the companies are trying to apply outsourcing in their operations, functions and processes. Thus outsourcing is the topic of growing importance and recent debate. The topic has wide implications on social, conceptual, economical and moral aspects. Outsourcing is wide topic for research. The scope of this paper is confined to the advantages and disadvantages of the research. The report takes into consideration various positive and negative implications that outsourcing business function decision can have of the firm. These report analyses the works of various authors. Various books, journals and articles will be taken into consideration for the report. In this report firstly concept of outsourcing then the advantages and disadvantages associated with the outsourcing of various business functions will be studied. The report also analyses the role of benefits and drawbacks on outsourcing decision of t he firm. The scope of the study comprises on insights to the topic of advantages and disadvantages of outsourcing business functions. The research has a wide scope because topic directly or indirectly touches the social, political, legal, comical, technical and environmental forces. The research has been designed in such a way to achieve all the predefined objectives. The limitations to the research include lack of aces to the data of company and geographical location. Location constraints are because it was not feasible to take face to face interviews everywhere. There was lack of access because most of the companies keep their information private and confidential. Also the research will take into consideration secondary data therefore there are probabilities of errors. All the information available about this topic will be heavily weighed and considered before framing a judgement or professional opinion. Literature Review: Outsourcing business processes and functions have emerged as a recent trend. This topic has been in the continuous debate from years. Different authors have different opinions about outsourcing. The outsourcing has various advantages but its potential risks and drawbacks cannot be overlooked. Lot of arguments have been given by various authors for and against outsourcing. Various advantages are listed in table 1 of appendix. One of the major advantages of outsourcing business function is cost saving. Outsourcing enables a company to get the same kind of job done at lower prices due to difference in the economic environment of various countries. For example he labour cost in Asian countries is much lower than other countries. Thus contracting out some functions to Asian countries could give the firms cost benefit. Operating cost can be reduced by well-designed and well managed outsourcing (Bryce and Useem 1998). It has been evident from various researches that outsourcing easily trans fers the responsibility of less relevant business functions to third party. This helps the business to achieve specialisation. It allows the firm to focus on core business areas and their expertise (Qulin and Duhamel 2003).Outsourcing also increases business efficiency and reducing capital expenditures. The capital expenditures on doing the function or process self is saved by outsourcing. Also it increases the efficiency because the vendor firm is specialised in the function that is outsourced. Contracting out the work to third party enables the firm to have on- time processes without incurring capital expenditures (Razzaque and Sheng 1998). Outsourcing also offers the benefit of better quality because the vendor firms have specialisation in particular area. The thirst for quality is one of the basic reasons why firms go for outsourcing. When companies go for offshore outsourcing, it offers the benefits of availability of some resources that are not available in the home country. M ost of the companies ensure that despite savings the quality should not suffer. Companies outsource to gain innovation and improve product quality (Corbett 2004). Staffing flexibility can also be gained by outsourcing. It helps the companies having seasonal staffing requirements. Temporary services can be used to meet the peak season demands. Event sector firms need is the best example of such firms. They need huge workforce during a particular event. Outsourcing allows the company to bring in additional resources whenever required and release them whenever done (Gupta and Zhender 1994). Outsourcing of human resource function provides access to better skills and talents. Companies do not need to spend time and resources for recruiting and training the workforce in the organisation. Other organisations who are specialised and have skilled pool of talent can do this task better. Thus outsourcing of human resources function to a specialised organisation provides business access to skil led and talented resources without much effort (Greer, Youngblood, and Gray, 1999). Outsourcing business functions saves on infrastructure and technology. Some functions and processes require vast infrastructural setup and technological setup, outsourcing these functions shifts the responsibility to outsourcing partner. Outsourcing eliminates the need for infrastructural development and the process or function is performed by outsourcing partner (Grover, Cheon and Teng 1996). Time zone advantage is another major advantage of offshore business process outsourcing. It allows the companies to have round the clock business operations. Example call centres situated at different locations provides services to customers of different companies at different times. It is one the most important advantage for todays global business (Kikuchi and Van Long 2010). Another major advantage of outsourcing business functions is risk reduction. Outsourcing various major functions such as human resource and knowledge based services reduces the risk to a considerable extent (Quinn 1999). These were the arguments were in the favour of business process outsourcing, there are various authors who contradict these advantages and present the various disadvantages of outsourcing business functions. Table 2 of appendix has list of potential drawbacks. One of the major disadvantages associated with outsourcing is loss of control. The firm loses the control over the function or process that was outsourced. For example if firm outsources its human resource function it will have a less control over the type of workforce that it wants to possess. The firm only has contractual control over the outsourcing partner. The management and control of that function shifts to the outsourcing partner (Antonucci, Lordi and Tucker 1998). Some authors also argue that outsourcing business functions does not actually save cost, outsourcing various business activities involves various hidden activities. Also this reduces capital expenditure but imposes various other costs, which are to be paid at frequent intervals. Anything that is not covered in contract involves additional cost (Lonsdale 1999). Major issue with outsourcing business functions is threat to security and confidentiality. If the compan y transfers any confidential information such as payroll records, medical records, product formula or any other important information, the security of the company and its people is compromised. If the private information of the company is made public by the outsourcing partner it can have various negative implications on the business (Raiborn, Butler and Massoud 2009). It is being argued by various authors that outsourcing business functions improves the quality but this is not possible in every case. The arguments against business function outsourcing state that outsourcing negatively impacts the quality. The contract only determines price and quantity, to earn higher profits outsourcing partner compromises the quality. In addition to quality hazards business also loses the ability to respond quickly to the changing environment. If a function or process is outsourced the changes cannot be implemented directly the changes that are to be adopted are transferred from the firm to outso urcing partner and implementing those changes requires changes in the contract and various other legal constraints (Blumberg 1998). Outsourcing of business functions can also lead to conflict of interest among the company and its outsourcing partner. It is not always possible that interest of business and its outsourcing partner are same, they may have different interest. The difference in interests of both the firms can lead to conflict among them, which is a negative implication (Avery 2000). Domberger (1998) and Hendry (1995) identified various other disadvantages of outsourcing business functions these include transaction cost, opportunistic behaviour and reduced learning and innovation (Mol and Kotabe 2011). Reduction in learning and innovation makes firm dependent on other firms. It indirectly reduces businesses firms ability to grow further. A drawback may also arise if the company has made a wrong choice while selecting the outsourcing partner or the contract is poor. If the company made poor selection of the vendor company it will ultimately hamper the process or function that is outsourced. Also the contract should always include all the terms and conditions poorly formulated business contract may lead business into trouble (Lee and Kim 1999). The available literature on outsourcing highlights that outsourcing of business functions or processes have various advantages and drawbacks. The outsourcing decision of the firm depends on potential risk and benefits associated with a particular decision. These advantages and disadvantages differ according to organisation, situation and market. Conclusion From the above study it can be concluded that outsourcing business process provides competitive edge to the businesses. It offers various advantages such as low cost, better quality, focus on core business areas, efficiency, staffing flexibility and well trained and skilled resources. Some of these advantages turn disadvantage in certain situations. For example outsourcing parent may compromise quality and the capital expenditure remain slow but the firm outsourcing may impose various time to time expenditure on the firm. Various other disadvantages of the firm include threat to security and confidentiality of information, contradicting interest of the outsourcing firm, wrong choice of the Vendor Company, poorly framed contract, low learning power, increased dependency and business loses its ability to quickly respond to changes in the business environment. There are various advantages but it depends on business weather it will gain benefits or has to face drawbacks. Every firm shoul d have a profound knowledge of advantages and disadvantages that can affect the company. The outsourcing decision of the firm and choice of the vendor should largely be depended on the possible outcomes. The company should always analyse the drawbacks and find out measures that how those drawbacks can be turned into the potential advantage. Overall the report clearly highlights the advantages and disadvantages of business functions outsourcing. References Abdur Razzaque, M. and Chen Sheng, C., 1998. Outsourcing of logistics functions: a literature survey. International Journal of Physical Distribution Logistics Management, 28(2), pp.89-107. Antonucci, Y.L., Lordi, F.C. and Tucker III, J.J., 1998. The pros and cons of IT outsourcing. Journal of Accountancy, 185(6), p.26. Avery, G., 2000. Outsourcing public health laboratory services: A blueprint for determining whether to privatize and how. Public Administration Review, 60(4), pp.330-337. Blumberg, D.F., 1998. Strategic assessment of outsourcing and downsizing in the service market. 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