Make or Buy Decisions Pick an article (or more) from the literature that tells a

Question

Make or Buy Decisions Pick an article (or more) from the literature that tells about a particular company’s outsourcing decision. There are many such articles. An easy way to find such an article is to search an electronic database of business literature. Magazines that have published outsourcing articles include Wall Street Journal, Fortune, Forbes, Business week, and Strategic Finance. Many business sections of newspapers also include such articles. (Skyline University College Library has a good database – Use it to get required data) Submit a report containing: List as many details about the outsourcing decisions as you can. Include the type of activity that is being outsourced, the size of the outsourcing, and the type of company providing the outsourcing service. Explain why the company decided to outsource the activity. If reasons are not given in the article, prepare a list of reasons that you think influenced the decision. What disadvantages are there to outsourcing the activity?

Explanation / Answer

If you are a business owner or manager and are considering outsourcing of any type, you’re probably aware of the huge risks that can be involved. If you’re not, you should be. Placing the future of your business into the hands of strangers can quickly go pear-shaped. Outsourcing is an allocation of specific business processes to a specialist external service provider. Most of the times an organization cannot handle all aspects of a business process internally. Additionally some processes are temporary and the organization does not intend to hire in-house professionals to perform the tasks. Once the task is outsourced to the service provider, he will take the responsibility of carrying out the tasks and maintaining the organization’s assets.

Most Commonly types of activities that can be outsourced are;

However, prior to outsourcing any component of your business to a third-party vendor, it is essential to understand the reasons and disadvantages of outsourcing. Although outsourcing presents a variety of benefits to your organization, it could also pose difficulties if not outsourced to the right service provider.

The Reasons why activities are to be outsourced:

1. Swiftness and Expertise: Most of the times tasks are outsourced to vendors who specialize in their field. The outsourced vendors also have specific equipment and technical expertise, most of the times better than the ones at the outsourcing organization. Effectively the tasks can be completed faster and with better quality output

2. Concentrating on core process rather than the supporting ones: Outsourcing the supporting processes gives the organization more time to strengthen their core business process

3. Risk-sharing: Outsourcing certain components of your business process helps the organization to shift certain responsibilities to the outsourced vendor. Since the outsourced vendor is a specialist, they plan your risk-mitigating factors better

4. Reduced Operational and Recruitment costs: Outsourcing eludes the need to hire individuals in-house; hence recruitment and operational costs can be minimized to a great extent. This is one of the prime advantages of offshore outsourcing

The Disadvantages of Outsourcing

1. Risk of exposing confidential data: When an organization outsources HR, Payroll and Recruitment services, it involves a risk if exposing confidential company information to a third-party

2. Synchronizing the deliverables: In case you do not choose a right partner for outsourcing, some of the common problem areas include stretched delivery time frames, sub-standard quality output and inappropriate categorization of responsibilities. At times it is easier to regulate these factors inside an organization rather than with an outsourced partner

3. Hidden costs: Although outsourcing most of the times is cost-effective at times the hidden costs involved in signing a contract while signing a contract across international boundaries may pose a serious threat

4. Lack of customer focus: An outsourced vendor may be catering to the expertise-needs of multiple organizations at a time. In such situations vendors may lack complete focus on your organization’s tasks.

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