Outsourcing (Research Paper Sample)

Title: OUTSOURCING
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EXECUTIVE SUMMMARY
Outsourcing basically means getting an outside firm to provide services or deliver products which could also have been done internally by the firm, for example customer products retail and distribution of electronics. In the modern setting, outsourcing turns out to be highly complex and organisations have turned to use outsourcing vendors for various reasons. The main driving and motivating factor of outsourcing is reduction in costs. Other major drivers include global financial crisis, flexibility of production, access to better and new technology, due diligence from the customers’ point of view, better economies of scale, a greater competitive advantage, increased capital investment, better service quality and definitely access to the best skills available in the economy. This paper will mostly consider outsourcing in the electronics manufacturing, Information Technology and Human resources sectors.
MAIN ISSUES
The most important issue to consider while outsourcing for a service or product, is to know the firm's core functions. The firm can then make considerations to outsource other processes which will not dilute their primary goals. These non-core functions may include maintenance, implementation and design of automation systems which can be outsourced from other firms which have expertise and experience. This will increase their values, improve focus and generally expose them to world class experts. Outsourcing of manufacturing and distribution operations has a longstanding history as a means of minimizing operational risk in a dynamic marketplace is a well established strategy.
A good example is the following number of issues related to Human resources outsourcing:
The position of off shoring, including job losses and redeployment
The strategic and management complexities of Human resource outsourcing deals
The future purpose and contribution of human resource because of possibilities of functions being transformed, or partially outsourced, through human resources outsourcing deals
The difficulty of human resource has in assuming more strategic or value adding roles after implementing the outsourcing
The key success factors that need to be considered for outsourcing to be successful include the following;
Risk management- Locations for the outsourcing should be well evaluated, operational and strategic risks should be analysed by ensuring that the right governance structures are put in place to avoid getting frustrations and losses
Compelling business case- Baseline costs should be defined and all current service levels accurately calculated so that the success of outsourcing can be correctly be known in advance.
Service delivery- Roles, scope and the difference between the in house and outsourcing should be determined and evaluated with care and clear boundaries put between then to prevent conflict of interests and overriding of duties. The best operational model should be adopted and be supported to the end by the management.
Leadership- A good leader should be appointed who has excellent entrepreneurial flair that will oversee the process and manage it like a business.
Management commitment- The senior management should commit them into the outsourcing process way before the process is started and keep their promise throughout the migration for successful target results to be achieved.
There are several problems which are attributed to the outsourcing implementation process which are hereby listed;
Resistance by the head user to adopt new method- Introduction of outsourced product will lead to changes in process, technology, behaviour and maybe in staffing. The outsourced firm cannot control what happens after they deliver the products as the receiving end user may prevent its intended achievement and objectives through lack of compliance, strategy disagreements or delays in their final execution.
Poor mutual understanding of the outsourcing contract- The significant number of new people who are involved in the implementation process who were never consulted during the initiation process may impair the intended absorption period which may lead to difference in views and opinions on the intentions of the contract.
Culture clashing between the client and the service/product provider-The corporate culture and the more recent emerging regional culture may clash. The client and the product provider definitely have different norms and ways of doing their decision making which pose as a problem during the implementation period. The issue is that outsourcing represents commercial relationship between the two parties where both parties are interested in getting the best of the deal regardless of the extreme measures taken.
Post contract processes not understood- When the expectation of the delivery is not met or the performance expected is not achieved, the project may get stalled on the way and both parties will get frustrated and the whole schedule will be delayed.
Lack of support on the receiving client leaders- If there is any lack of buy-in from the management of the receiving products client, the project is doomed to fail or delay because of the passive resistance. This is caused mainly by the unpreparedness of the changes due to come or the representative team do not understand fully the unique process of a particular organization.
NEW LEARNING
New studies have been done in the recent past. It shows that there has been increased competition in all sectors of the economy for example, cities in China are now doing well in outsourcing and have already overtaken their counterparts in India who doing well in offshore global delivery. The most person to person outsourcing popular currently are online tutoring, writing and translation services and web and software development, deployment, implementation and support on the same. The outsourcing business is also becoming more popular and has led to many suppliers getting into the business creating competition which has led to significant consolidation. Analysts and experts in this industry have predicted that soon there will be dynamics in mergers and acquisition in this sector to strengthen their service delivery.
The main motivation for IT outsourcing is cost sourcing and getting the best expertise. This is because paying for outsourced technology will generally cost less than designing and maintaining one internally. These decisions are driven by cost predictability due to fixed contracts, sharing risk on technology investments, access to specialised expertise, political reasons that hinder internal systems effectiveness and the perception portrayed by the efficiency of the internal systems. The outside provider is also able to identify the business trends or upgrades that may be needed to have the best system put in place.
The factors that will be considered before outsourcing for information technology software or system includes, how quickly the system will become obsolete, how scalable the system infrastructure should be put to support the demands placed on it, how effective the system environment can be managed to support corporate business objectives and definitely the cost savings that will be realized if the system is outsourced comparing it to designing it internally. These benefits may include, assistance with globalization, improved predictability of costs, lower long term capital investments, staff reallocation, access to new skills and technology, faster and high quality service and improved efficiency and finally the ability to concentrate and focus on the activities that will add value proposition and increase its competitive positioning.
According to the recent studies that have been done about 30% of the firms’ mostly medium size companies outsource the human resources. More and more organisations are increasing their use of the human resources outsourcing. This has enabled these firms to adopt a more strategic role to a limited extent. Significance information is that human resources outsourcing is more predominant among the private sector organisations. The drivers of human resources outsourcing activity are quality to skills and knowledge, the firm size, complexity of activities, measurability of performance may be ambiguous, to transform the organisation, to increase the product and service value, customer satisfaction and share-holder value, increase flexibility to meet changing business conditions, demands for products and services and technologies and definitely cost reduction attributed from maintaining a permanent human resource department.
Other factors may include, prior experience with outsourcing of other functions, the presence of a union, and the level of uncertainty in the volume of the human resource activity required to play a key role in almost every decision. The most popular outsourced human resources areas are those considered more transactional in nature though there is also some evidence of more strategic level outsourcing within the human resource function. However human resources outsourcing should be done because large firms sizes are no longer a competitive standard, competitive pressures are more severe in a global economy, investors and analysts demand a more focused management that delivers, bottom line performance, growth and size are no longer predictors of future profits and cutting edge technology and knowledge are now recognized as competitive weapons but are expensive to acquire and successful results are often elusive when implemented internally.
In the manufacturing industry the outsourcing is a new term and concept all together for those industries that manufacture equipment. The concept that existed was ‘make or buy’ that was more of a decision making and currently it is difficult to find a company that manu...