2. Main part
3.1 Outsourcing definition and types
3.2 Outsourcing and its effect on business
3.3 Outsourcing pros and cons
The term outsourcing comes with many preconceived connotations, both positive and negative, thus the study of the mechanisms for effective use of outsourcing as a business development tool is also clouded with these perception issues. Much of the academic study of outsourcing revolves around trying to determine if it is a good thing or a bad thing, whether it is harmful to the local workforce or beneficial to globalization, and whether the average company has an obligation, moral or otherwise, to consumers in its home town, state or country to use labor within that region. None of those topics are pertinent to the discussion here and are therefore being immediately excluded. That is not to say that these are not pertinent and valid area of research in their own right, only that they are tangential to this discussion herein. This review will focus on outsourcing as it relates to control mechanisms within company development. Specifically, this paper will attempt to identify the link between control mechanism and outsourcing within the framework of managerial accounting. Outsourcing, literally, is the use of an external source to perform a business function instead of having an employee do it using company equipment. In its simplest form, outsourcing is paying a cleaning firm for office maintenance rather than hiring a janitor. The complexity skyrockets with the complexity of the task being outsourced. In a derogatory sense, outsourcing is often used as a synonym for offshoring, the process of contracting with a firm in another country for the provision of some goods or services. For use in this discussion, control mechanisms are the means by which power is divided within a business relationship and can be either formal or informal. Because we are speaking largely of inter-firm control mechanisms, we will place great emphasis on the informal means of control and how those are impacted by the formal control mechanisms. Within that framework this paper will attempt to discuss the correlation between outsourcing and control mechanisms. Firstly, we fix our attention on the outsourcing strategy of a company. Though outsourcing has become popular in management (accounting) literature, our understanding of the concept is still limited since the outsourcing strategy followed by companies can differ substantially with their different situations and different aims.
2.1 Outsourcing definition and types
Outsourcing is the process by which a company contracts another company to provide particular services. These services/ functions would be otherwise carried out in-house, by the company’s own employees. Outsourcing is becoming more and more popular in today’s business environment, and most companies outsource some work or other. Call center services, payroll, maintenance etc are some of the kinds of work typically outsourced. Generally, companies outsource functions that are non-core to their business. The firms that outsource work are known by the terms client and buyer. The firms to which work is outsourced are known variously as vendors, third-party providers or service providers. There could be several reasons why companies outsource work. But the foremost reason is the money it saves. Many service providers can offer to get the work done at lower costs, as they have fewer overhead expenses and perhaps operate in a different economical environment. In outsourcing, it is often narrow functions such as payroll, data entry etc that are given to specialist vendors. These specialist companies can therefore do the work more efficiently as they have specialized tools, facilities and personnel trained for that particular kind of work. When a company outsources peripheral work, it is able...