Outsourcing SWOT Analysis: U.S Industry

Topics: Outsourcing, Strategic management, Business process outsourcing Pages: 10 (2925 words) Published: October 24, 2010
PICMET 2006 Proceedings, 9-13 July, Istanbul, Turkey (c) 2006 PICMET

Outsourcing SWOT Analysis for Some US Industry
Md B. Sarderl K.J. Rogersi, Edmund Prater2 'Department of Industrial and Manufacturing Systems Engineering, University of Texas at Arlington, Texas - 76019, USA 2Department of Information Systems & Management Science, University of Texas at Arlington, Texas - 76019, USA Abstract--Outsourcing is proven as a good idea for many firms that need to reduce operating costs and improve information technology operations. But it remains important for them to select the appropriate outsourcing activities. Many companies will be hurt by hastily following the herd down the outsourcing path without thoroughly evaluating the benefits and risk associated with it. Some companies even do not ask themselves the fundamental question for outsourcing such as; will it add value to their customer? Or will it reduce their overall costs? If they can answer yes, it might be a candidate for outsourcing. In this research we tried to evaluate the outsourcing benefits and its underlying risks in the context of three US companies from three different businesses. A SWOT analysis was done to find the best candidate of outsourcing for a particular company.

outsourcing contracts [9]. One in four companies has brought outsourced functions back in-house and nearly half have failed to see the cost savings they anticipated from outsourcing, according to a study by Deloitte Consulting [4]. Instead of simplifying operations, many companies have found that outsourcing activities can introduce unexpected complexity, add cost and friction into the value chain, and require more senior management attention and deeper management skills than anticipated, according to the study [3]. Due to this negative experience, many US companies are taking a cautious approach now. In the following sections we have talked about different approaches of outsourcing and decision making process to select outsourcing functions. A. Approaches To Outsourcing First, we want to talk a little about the different approaches to outsourcing practiced by US industries. There are a number of different ways to outsource; some of them are as follows; Single Source Outsourcing, Multiple Source Outsourcing, Selective Outsourcing (only parts of functions), Business Process Outsourcing (BPO) (full function outsourcing). There are advantages and disadvantages to each. There are also many different viewpoints on which of these strategies is the most effective. Some studies show, for instance, that selective outsourcing is more cost effective than BPO [6]. On the other hand, there are certain case studies that show that a BPO strategy can be very effective [7]. Companies must sort out for themselves which one fits their business strategy best. To be effective, companies must first understand their current capabilities. They must determine what their core competencies are and be careful not to outsource them. As examples, all three of our interviews were consistent with this philosophy. In particular, Company "A" outsourced their HR and IT needs while sticking to what they do best, which is the transport of petroleum products. Company "C" outsourced billing and tax paperwork, because the core competency there was in providing speech pathology service. Company "B" 's core competency is in design and not logistics, manufacturing or human resources. Because of this, they outsource all three. Then they must carefully consider why they want to outsource a particular area and whether outsourcing will produce cost savings. Outsourcing an area just because their competitors are outsourcing that particular area can cause considerable problems and promote risk and is not an effective use of critical business skills. Company "B" outsource their manufacturing not because of their competitors, but rather because it makes more sense.


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