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Outsourcing

Outsourcing is a contractual relationship where an external organization takes responsibility for performing all or part of a company’s functions (Vita, 2006). Outsourcing is the term used to designate a relationship in which a partner company performs business functions. Common examples of outsourced functions for companies in the developed world are software development and call centers. The principle justification for outsourcing functions like these from, for example, the US to India is that prevailing wage rates for these kinds of tasks are much lower than in the US and the Indian partner companies hire and train employees who speak English and are skilled at their jobs. There’s a difference between outsourcing and off-shoring. When a vendor in another country performs an outsourced function, off-shoring is the correct terminology for describing the relationship. The jobs being outsourced in an organization do not necessarily have to be outsourced to another country. Off-shoring can result in significant savings due to wage and currency discrepancies among countries. However, quality controls must be maintained to ensure that the products and services provided are returning the expected results. Outsourcing is typically done by organizations who outsource non-core processes that are inefficient, difficult to manage, or too costly. Choosing a supplier to meet an organization’s outsourcing needs depends on the business process being outsourced, the scope of the project to be outsourced, as well as geographic factors. Business processes that are often considered good candidates to outsource include, but are not limited to:

  • administration (audit, tax)
  • asset and property management
  • finance (accounting, billing, accounts payable, accounts receivable)
  • human resources (benefits administration, payroll)
  • information systems (development and operations)
  • miscellaneous (energy services, customer service, mailroom, food processing)
  • procurement/logistics

Business process outsourcing is becoming increasingly important. The management of one or more processes or functions by a third party is a means for the organization to reduce costs. The key benefits of outsourcing are realized by organizations that outsource business processes by transferring the entire function out-of-house. This enables access to specialized knowledge and expertise in the area; sharing of new methodologies, technologies and other resources; and standardizing processes across the organization.

An organization needs to outline the benefits and risks of outsourcing when deciding whether to outsource. The benefits need to outweigh the risks in order for outsourcing to be efficient and effective (Halvey, 2000). A typical benefit/risk analysis is:

Benefits:

  • cost savings
  • increased flexibility
  • better customer or employee service
  • higher productivity
  • ability to concentrate on the core business
  • implementation of wide initiatives
  • movement of assets off books
  • more resources
  • variety of skills
  • access to new methodologies and technologies
  • training expense reduction
  • greater flexibility

Risks:

  • loss of control
  • difficulty in managing costs
  • additional liability
  • difficulty in bringing the business process back in-house
  • reduced flexibility

Uncertainty in outsourcing occurs when an organization is not sure which business process function to outsource. Organizations should be overly inclusive with what needs to be outsourced. Including an unbundled requirement where the vendor provides separate pricing for certain functions can be helpful. Also, deciphering through the complexity of outsourcing can be easier once determining where the services will be provided.

The next step in assessing outsourcing is to identify potential vendors that have the desired resources, capabilities, and experience. The following will provide beneficial information to help make an informed decision:

  • vendor information from industry reports/survey
  • looking at industry publications
  • talking to other outsourcing customers
  • sharing goals and concerns with chosen vendors

Potential external relationship obstacles

Outsourcing offers a number of potential benefits for companies; however they cannot ignore the obstacles that come along with outsourcing. Some countries have not achieved the desired benefits from outsourcing, because they have not realized the expected cost reductions anticipated from outsourcing their business processes to a third party. The lack of capable suppliers and service providers is a major problem. Losing control over the outsourced process is not uncommon. Additionally, problems and issues may emerge due to the integration of services and systems provided by the vendor.

Problems within the networked organization usually arise due to the failure in identifying all stakeholders and network partners. All nodes and partners in the networked organization have to know and recognize all the stakeholders involved. Another potential problem can result from having dominant nodes, which must be eliminated in the early stages of the relationship. All nodes within a relationship must fully understand the mission and goals. Having incompatible missions and goals will destroy a relationship and no benefits will be achieved. Also, problems may arise from clashing company cultures. Therefore, when choosing a supplier or a partner in the networked organization, having similar goals, missions, and similar ways of performing the business processes are vital for the success of the relationship.

Questions & Answers

where we get a research paper on Nano chemistry....?
Maira Reply
what are the products of Nano chemistry?
Maira Reply
There are lots of products of nano chemistry... Like nano coatings.....carbon fiber.. And lots of others..
learn
Even nanotechnology is pretty much all about chemistry... Its the chemistry on quantum or atomic level
learn
Google
da
no nanotechnology is also a part of physics and maths it requires angle formulas and some pressure regarding concepts
Bhagvanji
hey
Giriraj
Preparation and Applications of Nanomaterial for Drug Delivery
Hafiz Reply
revolt
da
Application of nanotechnology in medicine
what is variations in raman spectra for nanomaterials
Jyoti Reply
I only see partial conversation and what's the question here!
Crow Reply
what about nanotechnology for water purification
RAW Reply
please someone correct me if I'm wrong but I think one can use nanoparticles, specially silver nanoparticles for water treatment.
Damian
yes that's correct
Professor
I think
Professor
Nasa has use it in the 60's, copper as water purification in the moon travel.
Alexandre
nanocopper obvius
Alexandre
what is the stm
Brian Reply
is there industrial application of fullrenes. What is the method to prepare fullrene on large scale.?
Rafiq
industrial application...? mmm I think on the medical side as drug carrier, but you should go deeper on your research, I may be wrong
Damian
How we are making nano material?
LITNING Reply
what is a peer
LITNING Reply
What is meant by 'nano scale'?
LITNING Reply
What is STMs full form?
LITNING
scanning tunneling microscope
Sahil
how nano science is used for hydrophobicity
Santosh
Do u think that Graphene and Fullrene fiber can be used to make Air Plane body structure the lightest and strongest. Rafiq
Rafiq
what is differents between GO and RGO?
Mahi
what is simplest way to understand the applications of nano robots used to detect the cancer affected cell of human body.? How this robot is carried to required site of body cell.? what will be the carrier material and how can be detected that correct delivery of drug is done Rafiq
Rafiq
if virus is killing to make ARTIFICIAL DNA OF GRAPHENE FOR KILLED THE VIRUS .THIS IS OUR ASSUMPTION
Anam
analytical skills graphene is prepared to kill any type viruses .
Anam
Any one who tell me about Preparation and application of Nanomaterial for drug Delivery
Hafiz
what is Nano technology ?
Bob Reply
write examples of Nano molecule?
Bob
The nanotechnology is as new science, to scale nanometric
brayan
nanotechnology is the study, desing, synthesis, manipulation and application of materials and functional systems through control of matter at nanoscale
Damian
Is there any normative that regulates the use of silver nanoparticles?
Damian Reply
what king of growth are you checking .?
Renato
What fields keep nano created devices from performing or assimulating ? Magnetic fields ? Are do they assimilate ?
Stoney Reply
why we need to study biomolecules, molecular biology in nanotechnology?
Adin Reply
?
Kyle
yes I'm doing my masters in nanotechnology, we are being studying all these domains as well..
Adin
why?
Adin
what school?
Kyle
biomolecules are e building blocks of every organics and inorganic materials.
Joe
what is business plan
Sthembiso Reply
how to startup business
Mahesh Reply
A canal is more of a need then a cavity
Commander Reply
what is electronic banking
Segun Reply
what does it mean business eco system?
Mohammed Reply
what is business
Abdul Reply
how can i know my business best resources, cheap and good quality
cabdi Reply
vikash rawat
jagvir Reply
entrepreneurial mobility
Manish Reply

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Source:  OpenStax, Business fundamentals. OpenStax CNX. Oct 08, 2010 Download for free at http://cnx.org/content/col11227/1.4
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