Outsourcing: A Positive Perspective
Outsourcing has been considered to be a difficult to implement business innovation. Business people around the world are finding ‘silver lining’ solutions to the challenges and opportunities of outsourcing. The objective of this article is to give the readers a positive perspective of outsourcing and debunk the myths related to it. This article discusses the misconceptions, challenges and advantages of outsourcing for better understanding of the concept. It is poorly understood which results in companies making serious mistakes. In the next few decades, outsourcing will make the businesses more comfortable by shifting globalization model towards outsourcing.
Outsourcing: A Positive Perspective
For the past few decades, businesses have experienced a dramatic shift in its course of globalization. Firms are looking for cost effective systems to maximize profitability and maintain quality at the same time (Lu, Meng, & Goh, 2014). The concerned company believes to manage the process on its own if the incurred cost is low and standards are met. As a result, companies should focus more on their fundamental aptitude and skills by considering outside resources to fulfill a task efficiently(Çiçek & Özer, 2011). This gave rise to a business optimization concept known as ‘outsourcing’.
Outsourcing is referred as an act of acquiring services from an outside source. From a business perspective, it is termed as hiring a third party that specializes in that particular aspect of a task. This enables the company to focus on its area of expertise.
Since the industrial revolution, it was previously known as ‘sub-contracting’ for increased efficiency and profit margin. It has majorly become a practice of companies in United States and United Kingdom to outsource their projects. It is a known fact now that In US and UK, most of the managerial positions have become extinct after the recent economic recession. And by the passage of time, this low-cost source hiring will evolve on a global scale.
Reasons for outsourcing
It is first necessary to understand the reasons for outsourcing as it is different from the other business trends to obtain the desired results. Once the interests and goals of a company are addressed outsourcing may be needed of the following reasons (Bucki);
Specialized skill set: By outsourcing a well-trained and highly competent third party, experienced in a particular area of expertise like engineering or IT that may prove to be adequate.
Quality Management. To avoid deadlines and ensure the product quality, efficient managers in a functional area can be a possible option.
Strategy assignment. By outsourcing the tactical concerns of each manager, the company can focus on issues like market positioning and new product development.
Core functions. Outsourcing functions which may be the key to the survival of the company can help it keep afloat in the business arena.
Avoid major investment. Building a function in-house, a company may require to pool in large investments for establishment and modernization.
Control a huge volume of business. For a company to focus on its core functions in a fast growing situation, the management team may require to outsource for further assistance. Overloaded situations where the in-house staff cannot keep up with the demand, outsourcing may be only viable solution. This will result in improving flexibility by converting fixed costs to variable costs.
Improve performance. The overall performance of the temporary inefficient staff can be improved by welcoming an outsource company to participate in the bid process. This will initiate a completion amongst the two parties and may bring the staff back on its track.
Traditionally, outsourcing has its benefits for the reduction of cost incurred during a specific project. The reasons mentioned above can also be considered as the added benefits of outsourcing. Besides, following are the advantages of outsourcing;
- Increase sales opportunities.
- Improve corporate image and public relations.
- Prevent missed opportunities.
- Reduce annual costs almost immediately.
- Enable business to focus on core competencies.
- Reduce or eliminate customer complaints.
- Increase customer loyalty.
- Beat competition.
Circulation of myths related to outsourcing is based on misinformation or fear. One of the most heard misconceptions is related to cause permanent unemployment in the local country hiring people from another country. It is basically countered by the fact of ‘offshoring’, which involves hiring overseas contractors, not necessarily residing in the local country.
Another myth revolves around the conventional thought of the small businesses that they could not benefit from outsourcing. An open attitude is the key to this answer as they too aim for making more and spending less in a specific project. Big companies tend to look for small companies in order to get a specialized job done ensuring mutual benefits. Besides the fact it has caused unemployment in the developing countries, one cannot overlook the other powerful trends changing the global world.
- Globalization of domestic economy.
- Replacement of manpower by technology.
- Changes of market driving force from company to consumer.
- Transformation of the employer/employee relationship
This powerful business tool has the possibility of being considered in almost endless aspects of a business. One of the numerous reported benefits are from US IT industry in 2008, showing a climb in savings from $6.7 to 20.9 billion. They can be surfaced with respect to their usage in the ascending order as information and technology, administration, distribution and logistics, finance, human resources, manufacturing, call centers, sales and marketing, real estate management and transportation. Some of the emerging opportunities of outsourcing are medicine, sales forces, governmental services, retail services, pharmaceutical industry, financial services and health care information.
The common challenges faced by outsourcing for successful implementation involve choosing the right partner, distribution of autonomy for better relationship and managing the transition of employees with care. It requires being prepared of any accidental changes due to compatibility issues of the companies involved. Micro management of the outsourcing project should be always kept insight to avoid failure once the responsibilities have been distributed. It requires a great deal of planning and management before its usage. Uncovering the hidden costs may lead to disagreements and poor outcome. Evaluation of company expertise, compliance with governmental regulations and the difference of culture are some of the aspects before a company considers a function to be outsourced. Therefore, there should always be a contingency plan in case the desired results are not met.
Outsourcing appears to be the most feasible solution for the companies to utilize their in-house staff strength for more productive activities. Some of the businesses commit mistakes by implementing this powerful business tool if they wish to escape from dealing with their normal operational problem. It is forecasted that a major transactional, technological and administrative shift will take place offshore in the coming future.
Bucki, James, Top 7 Outsourcing Advantages: Outsourcing Advantages: A Back-Office Operations Illustration. Retrieved 16 April, 2014, from http://operationstech.about.com/od/officestaffingandmanagem/a/OutSrcAdvantg.htm
Çiçek, Işık, & Özer, Bilal. (2011). The Effect of Outsourcing Human Resource on Organizational Performance: The Role of Organizational Culture. International Journal of Business and Management Studies, 3(2).
Lu, Qing, Meng, Fanwen, & Goh, Mark. (2014). Choice of Supply Chain Governance: Selfmanaging or Outsourcing? International Journal of Production Economics.