Outsourcing: Strategic Management and Company

Only available on StudyMode
  • Download(s) : 304
  • Published : April 11, 2013
Open Document
Text Preview
Outsourcing

Outsourcing is a business strategy that has been around since the eighties and has grown in popularity year after year since. There should be advantages to outsourcing for this trend to occur. There are however certain types of companies that would disagree with this method. Outsourcing has become one of the most controversial issues in business today. This report will explore different approaches on this matter to try and understand whether outsourcing is always the best option or not. It will study the advantages and disadvantages of outsourcing and insourcing, why some companies prefer one as opposed to the other and finally the factors that affect their decision, such as environment and cost. The definition of the term outsourcing is a controversial matter as there are many views on this topic and so cannot be agreed on. According to Dave Griffiths (The theory and practice of outsourcing) it can be defined as “the strategic use of outside resources to perform activities traditionally handled by internal staff and resources”. In simple terms outsourcing is a strategy in which a business contracts out certain tasks to an external provider that are generally specialised in the type of service being requested. Insourcing can be defined as assigning a job to someone within a company, this is when a task is performed in house contrarily to outsourcing out of the company when a job is contracted to a third party firm. Another form of insourcing which is often overlooked that does not involve employees, is temporarily hiring specialists to work onsite for the company. Even though the employee comes from outside the company, because they are hired into it, it is considered insourcing. This person can then perform the task that he is asked to do or can train staff on specialized equipment and techniques. Companies want to venture into different areas to be more competitive in the market, instead of training staff with a new skill or hiring which can be costly, they will seek a company that has knowledge and expertise in the specialized area. Another reason for outsourcing could be the cost, for example a food retail company that have a product which they want to bring to the market, rather than having a factory where the whole manufacturing process takes place they will produce the product and seek the packaging of it elsewhere from a different company. This means they do not have the expense of bringing packaging machinery into their factory. These are a couple of examples why companies could outsource but there are various reasons for doing so. Outsourcing can be categorised in to three areas: technology services outsourcing, business process outsourcing and knowledge process outsourcing. Technology is rapidly developing and changing and companies must stay up to date with refined technologies and systems, which help keep companies competitive within the market. Companies must adapt to this fast paced progress but it is not always possible or financially viable to invest in new skills within the company and this is when outsourcing could become an option, as subcontracting other companies with specialized expertise in certain technologies may be a more cost effective alternative. This type of outsourcing would come under technology services and they include technologies such as electronic commerce, network infrastructures, telecommunications and website development. Business process outsourcing, also known as BPO is a relatively new type of outsourcing that has been around since 1995 and has developed since the internet has become accessible to everyone. This category includes operational functions (customer relations management, accounting, human resources, logistics, insurance, media outsourcing) that are often outsourced to another company as they are not part of the company’s primary domain. This category can be subdivided into two areas: front office roles (customer oriented tasks, such as marketing,...
tracking img