Advantages And Challenges Of Outsourcing Functions Of Business To Third Party, Essay.

Analyze the benefits and challenges of outsourcing the functions of the business to the third party.

Outsourcing is considered as a process that is adopted by many organizations to minimize their expenses by transferring the business functions to the third party, instead of performing the functions internally.  This strategy is taken into consideration by many companies so that operating costs can be reduced and also profitability can be enhanced. There are many business functions like manufacturing parts, human resources, marketing, and call centers.  The companies that outsource their business functions are IBM, Hewlett package, and Kingston.  This report will give focus on IBM regarding the advantages and disadvantages of outsourcing a business function to another company.

The aim of the report is to analyze the benefits and challenges of outsourcing the functions of the business to the third party. IBM gives focus on outsourcing the business functions to another company so that the cost of operations can be reduced.  It is seen that outsourcing business functions can result in loss also.

The company outsourcing its business function can give negative outcome on the management and also the company can face the risk of data leak and also reduces the satisfaction level of customers. The main object of the report is to evaluate the advantages and disadvantages of outsourcing by taking into consideration IBM Company.

This report will discuss about the outsourcing done by IBM and many companies. The discussion is made about the failure and success of outsourcing. Also, the emphasis will be given to the benefits and drawbacks that company faces at the time of outsourcing the business functions.  The strategies considered by the Company to outsource the business functions will also be discussed. This report will evaluate different concepts of outsourcing given by the market experts to determine the rewards and limitations.

Outsourcing is considered as a practice that is used by the companies so that efficiency can be enhanced by shifting tasks and jobs. The functions that are contracted out can be conducted by the third party onsite or offsite of the business.  The functions are transferred to the third party organizations also.  It is an important method that minimizes the cost that is considered by the companies globally and also developed countries considered this in an effective manner (Glaser, 2017).

IBM is known as American international technology organization that is established in 1911. The company conducts the activities in computing, cloud programming and also in information technology industry. The company outsourced the business function to the third party company from India and Singapore that helps to enhance the core values. IBM has more than 40 data center that conducts the activities of the IT sector.

Project Scope

Outsourcing is related to transfer the work and the duties to other organization. It also helps the companies to enhance their attention to the business activities and also guide them to gain a competitive advantage by minimizing their cost of operations. It is seen that companies have many options to outsource the activities. Example:  By taking into consideration the Dhar paper (2012), it is seen that IBM transfers the whole process by analyzing the management of an IT system and also they conduct the support for the end users internally.

The strategy of outsourcing in the IBM gives emphasis on attaining the improved customer service quality and also reduces the operation cost.  It assists the company in creating permanent and temporary provisions for employment, skilled labor and also enhances the product designs.  At the time of formulating the strategies for outsourcing, the company should analyze the potential grounds and should also give focus on the functions of the business that are outsourced.  IBM outsources the following functions like Human resource management, service management, technical process, call centers and legal procedures.

Outsourcing is one the function which gives benefit to the business and also assists them to gain competitive advantage. In the recent scenario, there are many large companies that have taken into consideration outsourcing as an important part of conducting the activities of the business.  There are also many advantages that are availed by the company through the process of outsourcing the business activities or functions of the organization (Childress et al., 2014).

By outsourcing the activities, IBM gives focus on the elements of their business. The outsourcing helps the company to implement all the resources in an effective manner and also enhance the functions of the business.  According to Han and Mithas (2013), The Company gives emphasis on manufacturing the computer hardware and also transfers the information technology services to the other company. This helps IBM to conduct the activities in an effective manner.  IBM attained the same benefit by outsourcing the business function like IT Services globally.  It has enhanced the hardware quality as the activities are not interrupted by the activities conducted on the daily basis.

There are many operational costs that are minimized by outsourcing the business functions like salary expenses, workplace expense and also many expenses that are concerned with the workplace.  It assists the company in gaining the cost advantage by giving focus on the competitors (Harmon, 2015).

Literature Review

The companies outsource their business activities to other companies who have specialization in a particular field.  The employees of the organization have proper skilled and technical knowledge that helps to perform the task in a proper manner.  It directly gives impact on enhancing the efficiency and also the quality of the functions or the activities that are outsourced.  The company also attained the benefits by outsourcing the IT services to the 40 data services globally (Mukherjee, 2017).

In the research Sekaran and Bougie (2016), it is seen that Tesco outsourced the work instead of giving training to the employees of the organization regarding the latest technology. It helps the company in minimizing the time and expenses to conduct the operations and also to gain competitive advantage.

The advantage of outsourcing gives impact on enhancing the satisfaction level of the customers as it is evaluated that the work is outsourced by the experts of the company.  When the company outsourced the activities it is seen that the company faced the problem of conducting the activities with the high quality of the products.  If the Employee is not able to conduct the activities due to any reason then it is seen that company has to appoint someone else so that the work can be finished properly (Eggert et al., 2017).

It is evaluated that IBM has more than 3, 80,000 employees who are conducting their day to day operations. There are a number of employees who are working in the call centers situated in India and Singapore. It helps the company to offer 24 hours services to its customers. The organization takes into consideration high rate of customer satisfaction with the help of data centers. 

Outsoaring helps the company to enhance the efficiency at the workplace. This allows in maintaining proper quality in the organization.  The emphasis is also given by the employees so that the activities can be conducted properly.  IBM has given proper infrastructure that helps to give emphasis on the objectives and also to supervise the data centers of the organization.

When the company takes into the process of outsourcing it is evaluated that company allows sharing the business risks with other companies.  Outsourcing is a contract the force the companies to offer good quality products and services to its customers. When the charge is given to other company to operate the activities and if they fail to conduct the activities properly then the company who outsources the operations can charge or can sue them in court.  This assists the companies to share risks and also compels the company to offer good quality products and services.  IBM takes into consideration this policy so that the quality can be maintained and also the risk can be shared with the other organization (Field, 2013).

Reasons for outsourcing

By giving focus on advantages it is evaluated that there are many drawbacks also in outsourcing the process. By outsourcing the activities, it can give negative impact on the company or the companies face various problems at the time of outsourcing the business activities (Spohrer, 2017).

At the time of outsourcing the functions of business, it is seen that the company take into consideration various rules and policies of the various organizations and countries.  Of the activities are outsourced then it takes a charge of outsourcing but the organization can also face various issues related to hidden expenses.  For verifying the outsourcing agreement there are many rules and policies that the organization has to consider so that the activities can be conducted smoothly.  By giving emphasis on market regulations of India it is evaluated that the company consider the new rules and policies and also implement in the organizational structure (Drucker, 2017).

It is seen that outsourcing is one of the easy replicates by the companies.  One company can attain a competitive advantage by outsourcing the activities by its competitors and can also apply the strategy to the business model.  Example: It is evaluated that IBM minimized the cost by outsourcing their IT services but the competitors attained the same benefits as well as from Dell. The strategy of outsourcing also introduces the new competition for the companies since it is taken into consideration by various it companies (Tunisini and Sebastiani, 2015).

By taking into consideration the outsourcing agreement, a company transfers its responsibilities and rights to the third party. The company takes into consideration managerial control that is essential so that the activities can be transferred in a proper manner. The outsourcing company might not conduct the work according to the principle of the organizations and also they have many clients that minimize their emphasis on the organizational tasks. IBM also faced the same issues many times since the data centers of the company are located in Malaysia, India, and Singapore, so proper control is essential to be considered. 

The data is one of the important elements for the organization and if it is leaked it can create a negative impact on the revenue of the business. According to Kshetri (2014), it is seen that to outsource the activities can be the major drawback for the company.  The company has to share their ideas and also the data with the other company. It can result in leakage of the data or the confidentiality information of the company. IBM faces the huge risks related to the confidentiality of the information with the clients and also with the data centers to offer proper services. Poor regulations of one data center can also leak important information of the clients which could give negative impact on the organization (Maglio and  Spohrer, 2013).

Advantages

According to Hribar, Kravea, and Wilson (2014), outsourcing is considered as a business that gives direct impact on the reputation and standard of the quality of an organization. Let's consider an example; if the damaged occurs on the faulty part that is manufactured by the outsourced organization, then the direct impact is given to the image of the company.  The company could charge outsourcing of the expenses but affects is seen in the image of the company.

According to Bickerton (2016) when the company outsources the activities of the call center, then the major issue that takes place is related to the language. If the language barrier takes place then it can enhance the dissatisfaction level of the consumers. There are many consumers who get frustrated at the time of dealing with an operator. IBM outsourced the work to Malaysia and also in Singapore.

The research of Bordeman, Kannan, and Pinheiro (2014), states that at the time of outsourcing the business activities the company dismisses the employees who are working in the organization. When the company considers the planned process, then it is seen that layoffs are unavoidable. This can give negative impact on the employees who are working in the organization.  By considering IBM it is evaluated that 5,000 employees in the next few months are dismissed. The decision that is taken has given effect on the image of the company also the productivity level is reduced.

 It is seen that IBM has attained a great advantage over its competitors by outsourcing the activities to the third party. IBM has given effect to the customer's services and resources to make proper decisions. IBM conducted a proper investigation through their scientists over more than 56 competitors and also with the 38 Non-IBM clients. The study evaluated that there should be the proper relationship between outsourcing of the IT services and also the business functions should be improved (Kotlarsky et al., 2016).

According to the research, there are many advantages of outsourcing that has given impact on the following elements of the business.

• Future advantages: The outsourcing of activities has given impact on the benefits. It is seen that the outsourcing of agreement enhance the profits and also the positive impact is analyzed on the income and growth of the company.
• Income before interest and taxes: There are many companies in which the growth is analyzed in the income as a comparison is made with the competitors.

According to Schniederjans, Schniederjans, and Schniederjans (2015), the research showed that the benefit of outsourcing the IT functions of the business. IBM has attained success in outsourcing the activities by introducing the proper strategies and considering the latest technology. IBM gives focus on enhancing the image and productivity level in a proper manner. If the comparison is made with the competitors then it is evaluated that customer satisfaction is important and high in IBM. The strategy of the IBM considered has given success and enhance the market share of the company. It is also evaluated that it assists to enhance the efficiency globally.

Conclusion

By analyzing the report it is seen that there are various companies that outsource the activities. This offers them many advantages and also enhances the customer service. IBM is one of the successful companies in outsourcing the activities to other company. Before outsourcing it is important to create clear guidelines so that the process of outsourcing can be successful

References

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