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Process Of Outsourcing In Business

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Question:

Discuss about the advantages and disadvantages of Outsourcing business functions. 
 
 

Answer:

Introduction:

Outsourcing is the process of business which involves obtaining goods or service by means of business contract from outside suppliers. The main purpose of practicing Outsourcing business by different companies is to reduce the cost of labor and transportation. Hence, it is important to effectively use the Outsourcing business process in order to implement a cost effective strategy. Nevertheless, there are certain disadvantages of this business outsourcing.

The aim of the current report is to highlight upon the existing literature related to advantages and disadvantages of Outsourcing business functions. All the relevant theory models related to Outsourcing business will also be highlighted upon in the current literature.

Project Overview

In the current age of globalization, it is important for all multinational organization to form collaborative business process in order to improve upon their rate of production. This can also help them to bring about innovation of business and help in the process of marketing. In this context, it is essential for all major business organization to explode the opportunities of Outsourcing business. Additionally, it is also essential for the organization to explore the negative aspects of outsourcing business process that may include compromising on the quality of the manufactured products or service. The aim of the current project is to discuss in details about the positive and negative aspects of outsourcing process in business. The project will highlight up on all the major existing relevant literature related to Outsourcing business that will help to evaluate the positive and negative aspects of outsourcing business.

 

Project Scope

The scope of the current project is to focus up on all the major relevant literature related to Outsourcing business process. The entire major past research work relevant to the topic will be discussed. All the major databases are included in the search process. The past journal articles that are published after 2010 are chosen for the literature review.

All the major positive and negative process that is encountered by the large scale multinational organizations due to outsourcing business will be provided in the project.  

Advantages of Outsourcing business

Outsourcing business process for increasing efficiency

The research paper for Weerakkody and Iran (2010), have indicated upon the fact that the total number of private organizations that outsource business process have increased significantly in all parts of the globe. The total value of the market of business process outsourcing is estimated to be around 309 billion-dollar in the financial year 2016. The major business outsourcing process that has been included in recent activities includes finance and accounting along with the process of human resource management. Mani et al., (2010), have added in the context that legal procedure is also one of the major business Outsourcing units. The overall growth rate of the business Outsourcing process market is estimated to be around 25% annually.

There is also a high level of expectation from the senior management of an organization regarding the service quality of the business Outsourcing Processing Unit. There is also the expectation of the companies to implement innovation in the Outsourcing business process. There are several companies that initiated Outsourcing business as a part of their operational activities. This can help the company to bring about regular innovation by hiring the talent from various external sources.

The hiring of the third party vendor in the manufacturing sector can help the business firms to increase upon the efficiency. This can in turn help in the companies to focus on innovation. This in turn has been one of the major results of high customer satisfaction. In case of electronic and automobile industry, hiring of third party organization has helped them to provide better quality after sale service (Lacity & Willcocks, 2012). This is mainly helpful for the companies to repair the defective products at much quicker rate. This is believed to help the company to help to improve upon their innovation.

Lacity and Willcocks (2013), believes that by hiring these third party business organization also can help in the process of reducing the overall expense of the company due to the fact that cost of hiring the workers though the third party business organization is much lower. The BPO service providers also do not require high level of incentives to deal with the extra pressure at the workplace. It is also possible for the large scale multinational organization to purchase new innovative ideas at much lesser rate from the third party organizations. There are also no major risks of violating the legal rules relating of patents and intellectual property (Javalgi et al., 2011). It is also possible for the leaders of the organization to foster innovation that is one of the important parts of business sustainability in the current global market environment.  

 


The partnership between the Apple Inc and Foxconn is one of the major examples of advantages of the outsourcing business. The manufacturing contract of Apple with Foxconn has helped them increase the rate of iPhone production. This has helped Apple to increase their market share in the smart phone industry in the regions of Indian Subcontinent and south Asian countries.

The BPO units of other manufacturing giants like Toyota and Samsung have helped them to provide better quality of customer support service. All the major issues that are encountered by the clients have been easily resolved by the services that are provided by the BPO workers.

Focus on the core business process

There are several elements of large scale business that needs full focus in order to fulfill the business objective. Nadkarni and Herrmann (2010), have highlighted upon the fact that in many cases, the companies tend to invest huge time on all non-core business activities. This can ultimately affect the prime activities related to business. In the current days of business process, it is essential for the companies to constantly gather the extra information that is needed in the process of implementing the business plans and bring about regular modification in the marketing strategies. By setting up the partnership with the outsourcing unit, it is possible for the companies to save precious time that is needed for the process of secondary information gathering. The BPO units can thereby provide valuable assistance in the process of marketing research that can help in the process increasing the branding techniques. This enables the employee of the organization to focus upon the major business process and thereby also help them to reduce the work pressures.

It is important to mention in the context as per said by Lacity et al., (2010), that the core competency of an organization is to focus upon the values of sustainability. This will help the companies to improve upon the process of strength and simply the overall work process of the company.

Advantage working 24 hours a day

Due to the increased effect of globalization, all major multinational corporations have their market share in all parts of the globe. With the help of outsourcing business process, it is possible for the multinational corporation to hire workers from different time zones. The companies in the Western nations often hire workers from the eastern countries, which enable them to continue their business process 24 hours in a day. Nedbal et al., (2011), have highlighted upon the challenge that many multinational corporations has to encounter due to difference in the time zone. As the companies are able to hire workers from other third party business organizations, it is possible for them to continue the official business work in all time of the day.

Due to the effect of globalization, it is possible for the major multinational business organizations to hire workers from all across the globe. This is mainly done with the help of third party recruitment groups. One of the major challenges that are encountered by Global companies to hire workers from different regions is to search for the perfect talent that is needed in the workplace. With the help of outsourcing business process, it is possible for the organization to get good quality of human resources in the form of skilled workers. As workers that are more talented are hired from different nations, it is possible to increase the cultural diversity of the nation.  

 

Disadvantages of Outsourcing Business

Involvement of hidden cost

In spite of the fact that Outsourcing business process are mainly believed to reduce the overall expenditure of business, the research paper of Massini and Miozzo (2012), have highlighted up on few of the major hidden cost that are involved with the implementation process. Outsourcing manufacturing unit from third party organization involves extra official work. There is also involvement of extra legal work that are the part of business contract made between two organizations. All these processes involved expenditure that is easily neglected in many occasions. Moreover, these expenditures are not included in the official financial report of the organization. Hence, it is difficult to keep a track of these hidden expenditures.

Security risk related to exposure of sensitive data

One of the major risks that are encountered in the modern days by all major business organization is the threat of data leakage. It is essential for the organizations to implement high level of security to protect the valuable and classified data related to business planning. Nevertheless, when the large scale multinational organization form Outsourcing business contract with other third party agencies, they have to provide valuable information related to the business process. Hence, they are exposed to the sensitive data that can be a major threat to the competitive advantage of the organization. There is also a major risk that the third party agencies can help to misuse the information and leak them in the public domain. The data related to the financial performance and future marketing plan are few of the vital information related to the performance of the business of the organization. According to Bustinza et al., (2010), there are major threats that can be faced by the companies due to the leakage of these data.

An example for this threat can be found from the business outsourcing partnership between Apple Inc and Foxconn. It is important for the smart phone manufactures like Apple to not reveal the features that are there in the latest phone model until they are being launched in public. Nevertheless, as the Foxconn is responsible for the manufacturing of the Apple’s smart phones, they are provided with the blueprint of the phone from beforehand.  Hence, there is the risk that they might expose the information related to the features of the phone to public domain. This can give a major competitive advantage to the rivals of Apple Inc.    

Loss of Managerial Control

When a company is signing Outsourcing business contract with third party agency, they are transferring some of the management power to the third party agency. One of the major issues in this case can be from the fact that the management control of the Outsourcing agency may not be same as the mother organization. There is a potential risk of organizational conflict between the two companies that can ultimately compromise upon the business performance and the rate of production (Bharadwaj et al., 2010). There is also the risk of conflict between time management between the two organizations that can ultimately result in delayed in the manufacturing process. The difference in the leadership philosophy can be the result in the major issues between two organizations and harm upon the reputation of both the organization.

Political and cultural disadvantage

With most of the outsourcing unit are being derived from different parts of the globe, there can be major issues related to political and cultural difference between these units. The unstable political scenario in many nations can be one of the major issues that can compromise up on the business performance. The difference in the culture can also be a major source of communication issues between different organizations. It may not be possible for one organization to respect the cultural the aspects of the different nations that is needed to deal with challenge of business globalization. Böhm et al., (2011), have mentioned about the importance of mutual success that is one of the major elements of business success in the outsourcing business. Due to the cultural conflict and communication issues, it is never possible for different organizations, which are a part of the outsourcing process to maintain the process of mutual success.

 

Pricing issues

In the outsourcing process, most of the resources of the manufacturing unit of the company are hired from different third party sources. In most of the cases, the price of gathering the resources can vary significantly. The pricing can vary due to the fact that in most of the occasions there is no regulation pricing that is claimed by the third party agencies. Hence, the company cannot fix upon a particular cost of a particular product (Carnahan and Somaya, 2013).

Conclusion

In the Concluding note, it can be said that it is important for an organization to evaluate the both positive and negative aspect of outsourcing business process in order to ensure that maximum benefit is achieved. Implementation of innovation is one of the major advantages of business process outsourcing that can help a large scale organization to make use of talent from workers all across the globe. It can also save the organization to save valuable time that is needed to conduct business research. The MNCs also get the opportunity to hire workers to work for 24 hours as they are able to recruit the workers from different nations from all across the globe.

On the other hand, the security threat that can leak valuable company information to public domain is one of the major disadvantages of outsourcing business process. There is also the issue of cultural and political conflict between different organizations. The loss of control of the manager of the organization is also one of the major issues. There is the chance of conflict among the managers within the workplace, who are working in different parts of the globe. The pricing issues can also be raised due to the fact that it is not possible for the large scale companies to have control over the pricing of the third party organizations. The pricing of the products are also raised due to the fact that there are many hidden costs that are involved that are not taken into account.

It is important that the future research related to the outsourcing business process need to focus upon improving upon the negative aspects that can help to have high level of coordination among the workers of Mother Company with that of the BPO.

 

References

Bharadwaj, S. S., Saxena, K. B. C., & Halemane, M. D. (2010). Building a successful relationship in business process outsourcing: an exploratory study. European Journal of Information Systems, 19(2), 168-180.

Böhm, M., Leimeister, S., Riedl, C., & Krcmar, H. (2011). Cloud Computing–Outsourcing 2.0 or a new business model for IT provisioning?. Application management, 31-56.

Bustinza, O. F., Arias-Aranda, D., & Gutierrez-Gutierrez, L. (2010). Outsourcing, competitive capabilities and performance: an empirical study in service firms. International Journal of Production Economics, 126(2), 276-288.

Carnahan, S., & Somaya, D. (2013). Alumni effects and relational advantage: the impact on outsourcing when a buyer hires employees from a supplier's competitors. Academy of Management Journal, 56(6), 1578-1600.

Javalgi, R. R. G., Gross, A. C., Benoy Joseph, W., & Granot, E. (2011). Assessing competitive advantage of emerging markets in knowledge intensive business services. Journal of Business & Industrial Marketing, 26(3), 171-180.

Lacity, M. C., & Willcocks, L. P. (2013). Outsourcing business processes for innovation. MIT Sloan management review, 54(3), 63.

Lacity, M. C., Khan, S., Yan, A., & Willcocks, L. P. (2010). A review of the IT outsourcing empirical literature and future research directions. Journal of Information technology, 25(4), 395-433.

Lacity, M., & Willcocks, L. (2012). Outsourcing business and IT services: the evidence of success, robust practices and contractual challenges. Legal Information Management, 12(1), 2-8.

Mani, D., Barua, A., & Whinston, A. (2010). An empirical analysis of the impact of information capabilities design on business process outsourcing performance. Mis Quarterly, 39-62.

Massini, S., & Miozzo, M. (2012). Outsourcing and offshoring of business services: challenges to theory, management and geography of innovation. Regional Studies, 46(9), 1219-1242.

Nadkarni, S., & Herrmann, P. O. L. (2010). CEO personality, strategic flexibility, and firm performance: The case of the Indian business process outsourcing industry. Academy of Management Journal, 53(5), 1050-1073.

Nedbal, D., Wetzlinger, W., Auinger, A., & Wagner, G. (2011, August). Sustainable IS Initialization Through Outsourcing: A Theory-Based Approach. In AMCIS.

Weerakkody, V., & Irani, Z. (2010). A value and risk analysis of offshore outsourcing business models: an exploratory study. International Journal of Production Research, 48(2), 613-634.

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