Outsourcing is the process in which one company contracts work that could be done in house to another company. Corporations view outsourcing as beneficial because it enables them freedom to focus on their core competencies. Although there are a great number of benefits to outsourcing, it also has its drawbacks. This paper will identify the advantages of outsourcing, discuss many issues a company might face when outsourcing, tie information studied and class activities into these issues, provide workplace scenarios where outsourcing will affect the outcome of a business.
There are many advantages to outsourcing. Most of these are tied closely to ...view middle of the document...
Many make outsourcing decisions on a piecemeal basis and fail to develop outsourcing strategies for her processes that allow them to compete in the global economy. In many cases, the choice of which parts of the business to outsource is based on ascertaining what will save most on overhead costs, rather than how the decision affects the long-term capabilities of the organization. In some instances, organizations outsource processes that are critical to competitive advantage and over time relinquish important knowledge sets and capabilities”.
There are several other issues that can arise from outsourcing. One issue many companies face when they outsource is the upset of employees. This can cause the quality of work to suffer because current employees will fear job loss. Employees have legitimate reasons to fear job loss due to outsourcing. According to Engardo, 2006, “The prime motive of most corporate bean counters jumping on the offshoring bandwagon has been to take advantage of such “labor arbitrage” – the huge wage gap between industrialized and developing nations. And without doubt, big layoffs often accompany big outsourcing deals”. A second issue, that a company may face, is the potential for the return on investment to fall short. Outsourcing does not guarantee a satisfactory outcome. There is a certain level of loyalty attached to in-house production or tasks completion. If outsourced, employee’s loyalties and commitments to quality are not as vested in company goals as those of direct personnel. The company may also run into issues of control. The contracts are very tricky to develop and if done incorrectly may cause the investment to be substantially more than bargained for. All hidden costs must be considered when developing an outsourcing contract. There is also potential for issues of confidentiality and conflicts of interest to arise. Trade secrets are often leaked as many competing businesses often use the same outsourced supplier.
Class Information and Activity Related
Just this week we learned how to analyze and determine whether to make or buy a product. Our discussion on make or buy brings to light the many different things that need to be considered when deciding to outsource. Many of the issues discussed previously can be avoided through proper research. There are four activities covered in class that can aid in the research for an outsourcing decision:
1. Validate a potential supplier’s reputation.
2. Negotiate a contract
3. Define the business objective
4. Evaluate your cost
These four activities, along with associated class material, will be further discussed below.
Validate a Potential Supplier’s Reputation
For starters, before deciding to outsource to any particular company, as much research should be done on the company as possible. It is through validation of the company’s information that will ensure the best decision is being made. In class, there were several assignments that required...