Explain why outsourcing is becoming a widely used approach.
Outsourcing has become a widely used approach because it liberate or release an organizations or companies of routine task, allowing them to focus on the important part that makes it competitive and give the most to it's success. It also help companies to access people and facilities they could not otherwise afford.
Outsourcing helps organisations or companies to reach their goals faster. Companies uses it in order to react quickly and profitably to issues and opportunities.
Most companies intends to keep some of their call center operations inside and outsource other fragments, often because they have undergo achievement controlling their business internally, but are searching to increase the program with expertise outside or geographies. varying call center operations in this conduct is an outstanding way for companies to keep internal benchmarks in place to incrrease the outsourcing results. One swiftly growing financial services company turned to outsourcing for its prepaid debit card products and services. This company sees customer support as its most important competitive differentiator and diversified its call centre operations to utilize offshore options.
Organisations also used outsourcing to improve their focus i.e. it set up a frame work for an expert outside the company to assume responsibility for operational details, permitting management focus on more vital business issues related with meeting customers' needs.
Outsourcing helps companies to be flexible. For instance, organisation Partnering with an outsourcing company with a deep steady of agents worldwide helps the company to quickly scale up or down based on demand. Two of the biggest drivers that create this demand are seasonal spikes (Christmas, Valentine's Day) and marketing promotions. One consumer company that outsources its holiday calls experiences a volume maximize of more than 500 percent, requiring several hundred temporary agents. A large travel agency specializing in cruises experiences dramatic increases in enquiries and bookings from December to March. As cruise travel is highly personal, agents must be trained to understand the various cruise options and provide sound booking guidance.
Companies or organisation uses it to obtain access to world class capabilities, for the reason that the kind of their specialization and their own core activities, outsourcing providers brings vast world class capabilities which include leading-edge technology that will assist companies satisfy the need of their customer and become more productive.
In most companies, outsourcing is a viable alternative to building the needed capability from the ground. New organizations, spin-offs, or companies expanding into new geography or new technology consider the benefits of outsourcing from the very start.
Companies outsource in other to improve their focus i.e. Outsourcing lets a company focus on its core business by having operational functions assumed by an outside expert. Freed from devoting energy to areas that are not in its expertise, the company can focus its resources on meeting its customers' needs.
Main benefits organisations can gain by outsourcing are :
- Outsourcing converts fixed cost into variable cost: it achieves capital for investment in a different place in the organisation and ease a way to avoid large expenditures with capital cost controlled as a result outsourcing can make an organisation more fascinating to investors, since more capital can be directly forced into revenue-producing activities.
- Cost saving: Most business adopts outsourcing as a result to achieve cost savings or better cost control over the outsourced function. Companies or organisations outsource to a vendor that focused in a specified purpose and execute that purpose more professionally than the company could, simply by virtual of transaction volume.
- Flexible capacity management: Outsourcing enables your company to manage its capacity and staff. The task of hiring personnel is passed on to an external contributor whom you can work out a deal with based on a definite result quality/ quantity, a definite number of hours, or other types of devotion.
- Staffing levels: Another general reason for outsourcing is to attain head count reduction or reduce vacillation in staffing that may happen due to changes in demand for a product or service.
- Outsourcing opens the option for an organisation or company to observe if it executes it's sub task professionally enough or at a stage of performance that wouldn't be better if completed outside the organisation.
- Knowledge: Outsourcing of information technology and other computer programming functions as a way to benefit access to new technology and outside expertise. This could be of particular benefit to little business which may not be capable to provide where to hire a computer expert or develop the in- house expertise to maintain high level of technology. When such stocks are outsourced, the small business gain access to new Technology that can help it compete with larger companies.
- Focus on core business: most companies or organisations outsource in order to do away with destruction and strengthen themselves to concentrate on the core competencies
Companies also outsource so as to minimize the work load of their employee, releasing them to take additional money making projects for the business. Or to supply more development opportunities for their employee by releasing them from boring tasks.
This can be a specifically attractive benefit for start up firms. Outsourcing can free the entrepreneur from boring and time consuming task such as payroll so in order for he or she to focus on the marketing and sales activities that are of most important to the companies long term growth and prosperity.
Outsourcing gives you access to knowledge pools that you might not have inside your own company. Instead of trying to build your own creative design department, you could, for instance, outsource your web design and marketing materials development to specialized agencies. In the old economy, big companies had their own departments for every business requirement. In the network economy, companies go back to their core business and use a network of external partners to take care of the rest.
The main drawbacks the organizations face due to outsourcing are:
- Security and confidentiality: outsourcing can prove to be a threat to the security and confidentiality of the of issues of a company. For instance, if a company is outsourcing vital business process such as payroll, confidential information such as salary will be known to the outsourcing service provider. Thus, one must carefully decide which business process to outsource and which one not to outsource. Customers in developed nations can get angry if the find out that their confidential details (bank, credit -cards etc) are in the hands of foreigner instead of domestic hands. Competitors can also be using the same foreign service provider that can potentially cause leakage of valuable information.
- Failure to deliver: with additional sources, you are believing a third party to deliver a definite quantity/quality of deliverables, you are likely to suffer the penalty despite the services levels agreement (SLA) you had in place if your provider fails to deliver.
- Company value: The major risk of outsourcing is that you may not be building the worth of your company in terms of persons in-house knowledge, and infastruction. In this case the worth of an outsourcing contract with a contributor will be less useful than an internal department.
- Negative reputation: outsourcing has gained negative reputation, even though studies have proven otherwise the common public opinion is that outsourcing eradicate domestics job. Your employee, clients and might not value the fact that you are outsourcing certain business process especially if it imply that you are concluding a part of your domestic operation.
- Companies or organisations that outsource can get into serious trouble if the service provider refuses to provide business as a result of bankruptcy, lack of funds etc.
- Outsourcings need the control of the process being outsourced by transfer to the service provider. Therefore, the company may lose control over its process.
- The present employee in the country that outsources may feel threat due to outsourcing and may not work properly.
- Outsourcing can also lead to the alterations of well established job processes that can lead to unnecessary delays and conflicts. Lack of coordination between people having different cultural backgrounds and different time zones can also lead to time losses.
- The service provider in developing countries generally services many companies. So there are many chances of partiality owing to more payment by other parties.
- A possible loss of flexibility in reacting to changing business conditions, lack of external and internal customer centre and sharing cost savings may also be a demerit of outsourcing.
- Undesirable results: This is especially true when a company hires a third-party vendor to mass produce a product. In the event that the finished products do not meet quality standards, the manufacturing process must be repeated by a different vendor.
- Another disadvantages of outsourcing to companies may include unfavourable contract lengths, problems in contract renewal, loss of competitive edge and contractual misunderstandings.
- Most ompanies loose control over the process that is outsourced
Different types of outsourcing approaches
- Business process outsourcing commonly called BPO started in the year 1995 during the arrival of internet business, it add in operational functions such as customer relational management, equipment, logistics procurement, accounting human resources, security documentation, manufacturing and media, insurance, health care outsourcing.
- Front office task
- Back office task.
- Technology service outsourcing (TSO): As a result of the fast changing world, business enterprises find it hard to invest on sophisticated technology and system. Technological struggle are fuelling the fast evolution of business and economic models. In order to strive in a competitive market, companies have to adapt to these changes. Most of these technologies include network infrastructure, electronic commerce, website development and application telecommunication. Investing on a whole new set of manpower to perform these task is obviously an additional capital expenditure. In-house employee may perform such functions but not as skilful as getting a third party firm that specializes on the field and are certain to be more cost effectual.
- Knowledge process outsourcing (KPO): the advance level of outsourcing relative to BPO is knowledge process outsourcing. it involves further research, technical and analytical skills which means that providers are accepted to work without depending on someone. It is also vital to that in BPO, all process are still put down out by the client whereas KPO are given academic property research, content writing, and database normally entail short time and peripheral projects.
- Information technology outsourcing (ITO): This is another major category ITO is normally overseen by the cio of an organisation. Nevertheless, the cio is regularly called in to control BPO and KPO operations where no important IT skills are involved. This is due to the expertise, the cio's who have developed in outsourcing negotiation.
- Human resources outsourcing (HRO): HR is getting outsourced to third party providers who can bring in the benefit of knowing the domain. HR is an activity that comprises of a group of activities which include payroll management, training. Benefit administration, staffing, travel expenses management, risk management, compensation consulting tec. These activities are outsourced by which the client can concentrate on their core competency.
- Research process outsourcing (RPO) is the most popular in the biotech industry. Clients outsource their R&D work. RPO also stands for Recruitment Process outsourcing.
In Business Processing Outsourcing, precise mission, especially those outside the core capability of a company is outsourced to a third party firm.
Business Processing Outsourcing can be expanded into two:
Front office tasks works are customer-oriented such as technical support, customer service, and marketing. While black office task are more of internal work e.g. (billing, payroll, and purchasing).
Other operations outsource by enterprises include book-keeping, multimedia, data entry, consultancy, proof-reading, editing also as medical transcription. like internet technologies advance, so is BPO. Business Process Outsourcing though, is measured as the most popular among the sorts particularly if one is to think that most companies outsource business process to offshore locations.
The grass of my lawn reaches up to my knee, and i have a weeding reception the next day. I don't have time to mow the grass, due to a lot of far more important things to prepare. On the other part the grass must be trimmed in other for the reception to take place otherwise the reception party might fail to hold. I hire my landlord younger brother who work as a lawn owner man to do the job.
- I don't have satisfaction for having my own mown my lawn myself.
- I manage to plan the saving right on time (time saving)
- I focused on shopping and other preparations (focus on core business)
- I was sure that my lawn will be well-trimmed, because of the boy's skill. I've had seen my neighbours lawns mown by him before (access to high degree of expertise)
- I didn't have to clean the lawn-mower, rake the grass. My hired 'haymaker' took care of everything (no additional, unexpected commitments)
- I payed the boy by the job, having the opportunity to trade a bit, however I was fully fulfilled with the outcomes so I choose not to (payment for effects)
- The boy proposed he can take care of my lawn on a normal basis, for a fixed monthly fee. He will come with his own tools and fertilizers at given hours and if I'm not 100% satisfied with his work, he will return back the money. I accepted of course, why to risk? (clear conditions of cooperation, guarantee of high quality services)
- The party was excellent. My boss came, had pleasant time and gave me a birthday bonus (the main goal has been reached)
This is an easy example of a real life outsourcing which brings measureable profits as seen above. The major advantage to this is cost reduction. Organisations that engages in outsourcing does not have to carry the cost of maintainace of its special section because all the work is now done by the outside firm.
A business man that owns several business in a local community makes a lot of money daily at the end of work from his customers and shop. A day came when he got a huge amount of money from his customer and he is afraid to put the money in his savings as usual so he thought of putting them in a bank or storing it at home. The next day he want to seek advice from a friend, after telling his friend and his friend told him to save the money at home in other for him to be seeing it everyday but he wasn't satisfied and he decided to ask another friend, which he was told to put the money in a bank when he told the man about his first friend which he went to meet and the man finally convinced asking him how he will fill if he loses the money by robbery, then he decided to put the money in a bank.
- the business man made a wise decision by asking his friend (Knowledge )