In the global business scenario, the business faces stiff competition to run their business activities and obtain profitability. Furthermore, cost control is a significant aspect in which different ways is focused by corporation such as fair treatment at workplace, co-operation and strong mission. Outsourcing is one of significant ways that could be used by company to control the restraints such as cost and time (Schniederjans, et. al., 2015).
The outsourcing is key phenomenon which has increased popularity in current scenario. It acts as a business when large corporations decided to give their routine job function to the third-party organization as it is beneficial to control the time and cost within an organization. In this way, most of the works are associated with the customer care work and such activities could not be core functions at the workplace. But, in the current scenario, it has been identified that outsourcing has originated from the big industry in which different business functions and activities could be outsourced by a third-party organization (Cavusgil, et. al., 2014).
The project has intended to assess the pros and cons of outsourcing the function of business. There are different objectives, which would be exercised to accomplish the research aim in a specified time period. It is discussed as given below:
- To define the concept of outsourcing the function of business
- To address the pros of outsourcing the function of business
- To discuss the cons of outsourcing the function of business
Outsourcing is a process by which function of business have been assigned to another individual and company. It is used to minimize the cost of production and expand their business in other nations. Moreover, outsourcing is demonstrated as business practices which could be effective in the restricted situation. For instance, a company wants to produce and sell specific products and services. However, it is stated that same company manufacture the products in their domestic nation could not be required because of certain factor affecting the cost of production. Hence, they can outsource this business function to third party organization where cost of production is low. Thus, this act comes under the kind of outsourcing (Sekaran and Bougie, 2016).
Meaning and concept of Outsourcing
Willcocks and Cullen (2013) stated that core outsourcing is defined as a business process in which corporation outsources some part of business function to third party organization. For instance, a larger telecom corporation may outsource their customer service function to a third-party organization that has the proficiency to operate the business function of Telecom Corporation. This illustration could be used as outsourcing of business practices. Further, in the current scenario, outsourcing becomes a larger industry which is recognized as business process outsourcing (BPO). Along with this, different mundane job activities could be outsourced to a third-party organization like housekeeping facilities of large office buildings and janitorial facilities. It has led to the origination of service management as a new flow of business practices.
In support of this, Hill et al. (2014) evaluated that outsourcing is defined as a business strategy which allocates the function, processes, decision, activities from the organization to third party organization. It is performed via negotiating contract and agreement with vendors who take accountabilities for quality, customer service, asset management, and production procedure and people management. This procedure can highly decline the fixed overhead expenses of a company.
Advantages of outsourcing
According to Caruth et al. (2013), outsourcing of business practice is beneficial for a corporation because it provides an opportunity to more emphasize on core capabilities instead wasting their efforts, money and time on boring tasks or activities. There are large numbers of a corporation which are engaged in outsourcing the business activities because it aids them to save their cost at the higher extent. Earlier, banks and other financial corporations like insurance organization wanted to decline the expenses and operational cost at larger extent.
In contrast to this, Prpi? et al. (2015) stated that customer care function needs a large amount of manpower as it is major expenses in the business process of banking and financial corporation. Customer care is not a core activity of business as Telecommunication Company can outsource this activity to Indian corporation because the cost for the same activities would be less than half from producing the same function in Australia with Australian workforces. This chain of outsourcing could be used by different industry segment to save their costs and time. In current time, a large number of third-party organizations are engaged in outsourcing activities as different business function could be outsourced.
Rushton et al. (2014) evaluated that cost saving is a key advantage of outsourcing the business function. In this way, outsourcing enables the business to decline the office space expenses, employee’s compensation expenses and other costs related to offering workspace. It could be also significant to eliminate the manufacturing setup and free up resources for other intentions. Outsourcing also facilitates the corporation to emphasize on their know-how and core business activity. It is stated that when a company goes outside their proficiency then they can outsource their business process as it will help to focus on core business. For instance, when a grocery store wants to add a florist in their operation then they should outsource the activities to focus on core business of grocery.
In favored to this, Tukker and Tischner (2017) illustrated that outsourcing is beneficial to improve the quality. Quality could be attained by vendors with more expertise and specialized processes. For example, the company makes a contract for cleaning services. It is also stated that outside facilities are a prominent asset for delivering appropriate training, recruiting, and offering inspection as it could not exist in case the function was performed in-house. The benefit of having a vendor contract is that company bounds to offer a certain level of services with quality. For instance, when IT function of business is outsources and the technician calls in sick then it is responsibilities of vendors to assess someone to replace them and attain the support needs. As a result, outsourcing is beneficial to provide customer satisfaction to a higher extent.
In the view of Runar Edvardsson and Durst (2014), outsourcing of business function is beneficial to improve the operational efficiency. Further, it provides the opportunity to the company to get services from vendor specialized system. Specialization facilitates higher efficiency and allows for prompt turnaround time and greater extent of quality. In addition, additional capacity could be generated from outsourcing because contract could be canceled when demand diminishes rapidly as compared to closing down whole plants owned by a corporation. Therefore, it is stated that outsourcing is beneficial to increase the flexibility within an organization.
Along with this, Cavusgil et al. (2013) stated that when corporations invest in a large number of assets like factories, building, and machinery then it is required to control the investment activities within an organization. It ensures to invest in human resources who are engaged in the dedicated job and focused on maintenance of assets. Hence, more life can be kept for the assets by performing the activities like preventive maintenance activities. It also makes sure that company has made a good investment for a longer period of time.
In opposed to this, Pearce (2014) evaluated that larger company finds easier to make a contrast with vendors who have trained people and have proficiency in special functions as compared to hire a person at the workplace and then trained them for particular job activities. In such case, a vendor can be selected by a company who has great experience in the standard operating procedure. In addition to this, outsourcing of business function is beneficial to enhance the business performance because outsourcer companies provide the opportunity to effectively run the business. It is significant for the company to offer a wide range of function and opportunity and aids to save the available human resources, who might not want to perform in less stimulating consumer backgrounds. It is also evaluated that outsourcing of business function is effective to improve the operational experience of service providers as this processes concentrate on staffing as compared to internal business process.
Markus and Jacobson (2015) discussed that when customer care division of bank is outsourced to third party organization then it would be responsible for all kinds of responsibilities regarding customer care division. As a result, it will ultimately increase the cost of the company. But, when a company outsourced at minimum cot then the same business activity would be done by a larger group of people at a lower cost. Therefore, a bank should focus on its core activities of banking and should make efforts to gain their customer base. In the current scenario, outsourced vendor handles the customer care of the bank as it indicates that more business opportunity can be grabbed by a corporation. It is evaluated that an engaged group whose responsibility is to offer customer service, can give effective customer service. Since, these outsourced activities are performed by proficient human resources. In addition, the vendor can enhance the customer service quality by offering feedback to the financial corporation and facilitate the alternatives to enhance customer care services.
Disadvantages of outsourcing
According to Liu and Wang (2014), outsourcing creates quality risk for an organization. Outsourcing can create the potential legal risks. For example, when a car is recalled for defective parts then the part was outsourced. The car manufacturer holds the burden of correcting the potentially damaged image of the car maker. As well as, vendors need to create a good image for the faulty product because there is a burden on the company to correct the negative customer perception. Outsourcing can create the poor service quality unless an agreement addresses a measurable procedure with respect to quality service reporting. There are certain contracts which intentionally leave the service levels as it unable to save the costs.
In contrast to this, Jeston and Nelis (2014) evaluated that outsourcing creates the language barriers for manager of a corporation. For example, when customer call center is outsourced to another country then the company needs to communicate in different languages. Hence, there could be chances of dissatisfaction level among customers due to language barriers at higher extent. Employees make negative perception regarding outsourcing and they have fear of lost jobs. As a result, they declined their efforts to perform the task in an effective manner. Thus, there is need to manage the employee’s opinion with grace to increase their efficiency.
Patil and Wongsurawat (2015) opined that organizational knowledge can also create complexities for the organization to outsourcing the business function. An outsourced workforce may not have the same knowledge and passion for a company as a permanent employee. It is analyzed that outsourced employee is hired on the contract and they are not highly knowledgeable as it creates the negative customer experience. Outsourcing also generates labor issue as it can affect the organization productivity. It is stated that organized labor in Australia has tough challenges because people who have less standard of living are outsourced from other nations. As a result, it may affect the daily productivity because workforces respond negatively due to outsourcing the business function.
In support of this, Pearce (2014) evaluated that legal compliance and security issues are identified in formal credentials. It is stated that outsource process should be organized and makes sure that there is attentiveness to legal observance and system security. For example, outsourcing the IT function and outsourced the workforces use their access to keep the privacy of customer information for their own increment. It is also determined that outsourcing results in decline staffing levels. Furthermore, layoffs are inevitable unless it could be designed through attrition. Moreover, when employees have not managed effectively then it could have an adverse impact on the remaining workforces.
In the view of Markus and Jacobson (2015), there could be chances of occurring legal and ethical issue in outsourcing. There are certain recognized incidents related to Footwear Company in which outsourcing vendor threw ethical and legal standards causes a human right violation in outsourcing manufacturing services. Another example of outsourcing blot was the Bangladesh Tahreen fashions factory where fire issue has occurred. This issue demonstrates the deliberate avoidance of legal and ethical norms. Furthermore, a large number of innocent employees have lost their lives as it creates ambiguity in outsourcing of business. This factory has engaged to produce the tees and shirts for recognized brands but later it was analyzed that the factory building did not have sufficient legal authority to deal with premises. In addition, they had also lost an agreement with one of the reputed brand owner and make a sub-agreement with another outsourced vendor as this brand was under inspection.
In contrast to this Cavusgil et al. (2013) stated that the loopholes can create while any job function and activities have outsourced to third party organization. Furthermore, corporations who make agreement must have moral, ethical, and legal responsibility to avoid the issues. It is also evaluated that quality of products and services could be influenced in case of outsourcing the good and services. There could be possibilities that vendor does not assess the implication of business procedure and quality standards as it could lead to loss the company’s reputation which has outsourced the products and services.
In support of this, Liu and Wang (2014) stated that another barrier of outsourcing is language particularly when there is an offshore outsourcing. The business process outsourcing is highly affected due to language barriers as it could be hazardous for business. Moreover, when services are outsourced then there is a risk of losing the confidential data from the third party organization as it can access such kind of data. Along with this, people who have criminal mindset can destruct the data of banking sector. There are also several examples related to mishandling the data and leak data from BPO sector which have led the workforces to lose their earned money.
From the above discussion, it can be concluded that there are two sides of outsourcing the business function such as it could be advantageous or creates barriers for business. It is also evaluated that outsourcing is used by the organization at the global level in the current scenario. Technology enables the business to outsource the business function from any part of the globe. It is also analyzed that outsourcing could be beneficial for business but, it can also create the barrier for a company. The same technology can be used by people with the wrong intention like data leak. Moreover, outsourcing process should be scrutinized before undertaking the ventures as it could create ambiguity in the business process. There are different cases where companies have violated the ethical and legal standard in outsourcing of business function. However, these companies have suffered damage to its brand image due to the offense of outsourcing vendors.
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