Advantages and Disadvantages of outsourcing Business Functions

Outsourcing of business functions

 

Introduction 

business functions is a new emerging trend in the business world. It is a one of the important alteration in the business processes due to globalization. Under this A business is transfer its processing for some of their business functions to third party and a contractual agreement is prepared for giving a benefits to the third party. Business process outsourcing is done due to increased global market share.

Advantages and Disadvantages of outsourcing Business Functions

(Halvey, 2007)The business process outsourcing is usually done by the manufacturing Companies to reduce their cost of production. The manufacturing Companies concentrate on finding a place or expert labor can be available at a less price as compare to the performing the same function in the Company. The process outsourcing is becoming a more popular as compare to before due to the globalization effects. Even in Australian market Companies are more familiar with the use of business functions outsourcing for reducing their overall cost for producing their products. Every coin is having a two sides there is no doubt in it. Similarly the use of Business functions outsourcing has a both the impacts i.e it initiates a various advantages for the firm but also there are some disadvantages those cannot be ignored or under estimate. The different researcher’s literature will be used to recognize the various Advantages and Disadvantages of outsourcing Business of using outsourcing of business functions.

Literature Review

Advantages and Disadvantages of outsourcing Business Functions The below discussion with reference to ideas presented by different researchers will helps to understand the Outsourcing of business functions more clearly.

“Outsourcing refers to the transfer or delegation of the business functions to an external service provider on the behalf of Business firm” It facilitates the management to perform their day to day tasks more efficiently. (Scott, 2010) Business outsourcing functions has been deployed by both public and private organizations to perform their tasks in a better way and it becomes a essential part of business strategy used by different Companies. (Tukel, 2006) The outsourcing of business functions comes into existence due to the complexity in the business process that causes a increase in the cost for performing some of the business activities. The extension in the global market raises the use of outsourcing in every part of the world.

 

The term Outsourcing evolutions were made at a different stages and it was not fully developed or popular until the year 1990’s before it most of business organizations outsource the supply material from the place where that were available at a less price. But in 1990’s when the Globalization concept was emerging as a popular trend then most of the manufacturing Companies focused on finding a way to reduce their cost of sales. The outsourcing the business functions from a place where cheap labour and material is available. This is the year of greater evolution in the outsourcing. (Handfield, 2006)

The Outsourcing can be used in narrowed and broader both ways. In a narrowed sense it was initially started by transferring the business functions like pay roll, data entry to be done by external party. But in the year 2014 the Global service outsourced was $104.6 billion US dollars. The term outsourcing will started include a more and more functions and these were outsourced with keeping in a mind cost effectiveness concept. (Dian, 2005)

Outsourcing is generally considered when it is found that there are some actions that can be done in a efficient, cheaper and faster way through the external third party. In other words for those tasks or services in which Company is not competent to perform it to compete in the market level then these functions or services are generally outsourced. The company contacted to the other organization or firm those are very competent in performing those tasks and it is now a integral part of the corporate strategy. (Lankford, 1999)

This emerging trend of using a outsource services has also been grown in a Australian Market. The Australian Manufacturing whether it is small, medium or large they outsourced their business functions for efficient and effective production of their products and it becomes the key strategy used by them to grow in the international market. In the words of Ghodeswar the aim of outsourcing by the manufacturing Companies is to maintain a control over their overheads costs. (Ghodeswar, 2008)

In the above few paragraphs there is discussion on advantages and disadvantages for outsourcing the business functions.

 

Advantages of Outsourcing

Advantages and Disadvantages of outsourcing Business There are various advantages for using a outsourcing in the business processes. The foremost benefit of outsourcing business function is that it reduces the costs and improves the efficiencies by implying a cost effectiveness concept in completing the business tasks. (Schniederjans, 2005) The products or functions are get done by a competent producer thus they can also gain through availing a benefit of cost of economies. The cost of economies is applicable to larger produce only. For a small or medium manufacturer it is not possible to avail this benefit but with the use outsourcing some of product manufacturing makes it possible to improve the costs for their products. Thus control over the cost is a major advantage of using a outsourcing of business functions.

In other way outsourcing of business functions also promotes the business in a global market because to done the business processes more efficiently a search in the international market is being done by the Company and to find a producer in a world with a cheap labour and cost effective raw material. Thus it also contributes towards the maintaining an international relationship.

The other important benefit of using outsourcing is that it promotes the concept of knowledge sharing in all over the world. It is a competent merit for the business firms because they can avail the benefit of accessing the skilled knowledge from any part of the world. Thus it also puts impacts on the improvement of human resource skill for the business through the exchange of business ideas with the other people. (Brown, 2010) It is necessary for promote the business in international market. It further helps to business to avoid the loss to the business concern due to lack of expertise advice. The availability of expertise knowledge makes it possible to improve the production and manufacturing process of the Company.

With the outsourcing of human resource a business can able to reduce the maximum errors from the business process. Usually most of the business errors or incidents happen due to absence of expert’s idea. But with the help of outsourcing the human resource services it enables the business to improve their internal skills to handle the different situations of the business.

The outsourcing the some business activities makes it possible for the business to concentrate on the main important functions and free them to pay more attention to the management aspect. In other words if most of the time is spend on internal business processes then it may be difficult for them to expand their business in the international market.

Disadvantages of Outsourcing

There is no doubt that increased dependency on outsourcing results in loss to the business in a various ways. As in case of Australian manufacturing companies it has been noted that outsourcing causes loss of knowledge for the most of business firms.(Harland, 2005) Because it is known that in today’s business world knowledge is also a competent advantage that is used by the firms to compete in the market. But the increased use of outsourcing has maximized the risk of loss to the knowledge shared with the other people. Exchange of knowledge can be more dangerous for some of the Companies and it may affect negatively on the rivalry position of the business.

The other key disadvantage of outsourcing is that it also causes a lose control over the business activities because by transferring the service to third party Company also loses the control over the same. It also results in increased the security and privacy challenges for the business because giving access to the external party means business needs to share some of their important knowledge or also need to delegate some of their access to the business’s internal resources. That may cause a serious issue for the outsourcing company.

Hence the purpose of the outsourcing is to improve the quality and costs aspects of the business. But it has been seen in the Australian Companies that outsourcing causes a poor quality of services or products that ultimately cause a loss to the business.

The outsourcing has also includes a various requirements those need to fulfill for taking a services of third party. It requires a major attention of the management of the Company and they need to fulfill the various legal obligations to transferring their business processes to others. In this way it becomes a time consuming process and caused a loss of maximum time in availing the services of outsource service provider. On the other hand there is also need to spend a extra cost just to take a services of outsider service provider and that increases the burden on the business by creating a one more type of expense for the business.

The outsourcing is an expensive for small or medium sized businesses because it requires a lot of efforts to search for expertise in global market and extra investment as well to imply the outsourcing in the business process functions.

Generally it is found that outsourcing process involves a many hidden costs to implement and included in the business process of the Organization.

Conclusion

“Advantages and Disadvantages of outsourcing Business Functions” The above discussion has briefly discussed the merits and demerits of using a outsourcing for business processed. It has been found that advantages are more as compare to disadvantage. The disadvantage can be avoided by taking a careful consideration for using a outsourcing services for the business process. The major loss of outsourcing is that it causes a loss of control over the business functions and that can be eliminated by not sharing a important key information with external service provider. Hence it is true that increased use of outsourcing has benefitted to the small or medium firms to expand their business and improve their efficiency at a greater level. The term outsourcing has emerging their new market in all over the world. Further it also been found that Human resource skills have been improved at a greater level with the outsourcing services and it is a main advantage when a producer is in one Country but users of their products in all over the world. In that case the experts of products can share their knowledge with the people in any part of world for their effective use. It promotes the international relationship concept in Global market. On the other hand there are some legislations are laid down for keep an eye on the outsourcing process. The compliance with those regulation helps to protect the right of both the parties. Thus it is not a right word to say that there are numerous obligations those need to adhere and requires a lot of time. This is done just to protect the user as well as service provider. The analysis of advantages and disadvantages assists to choose a better service provider by considering all these factors the maximum risk for using it can be avoided. Global market is extensively makes a space for using a outsourcing services and the above brief discussion on using these services enables us to know what we can gain from outsourcing at what costs. The benefits are totally outraged the effects of disadvantages of using outsourcing for business functions. 

 

Reference

  1. John K.Halvey, 2007 “Business Process Outsourcing” published by John Wiley and Sons at New Jersey.
  2. Michael D. Scott, 2010 “Scott on Outsourcing law and Practice” published by Aspen Publisher at United States.
  3. Kremic T, Tukel, 2006 “Outsourcing decision support: a survey of benefits. Risks and decision factors” published by Supply chain Management An international Journal. Volume 11 (6) PP 467-482.
  4. William M.Lankford, 1999 “Outsourcing: a primer” Management Decision. Volume 37, PP 310-316.
  5. Marc J.Schniederjans, 2005 “Outsourcing and in sourcing in an international context” published by M.E.Sharpe at USA.
  6. Rob Handfield, 2006 “A brief History of Outsourcing” published by NC State University.
  7. Ghodeswar B, 2008 “Business Process Outsourcing: an approach to gain access to world class capabilities” published by Business Process Management Journal. Volume 14, PP 23-38.
  8. Christine Harland, 2005 “Outsourcing assessing the risks and benefits for organizations, sectors and nations” Published in International Journal of Operations and production management. Volume 25, PP 831-850.
  9. Peter Brown, 2010 “The Power of HR Outsourcing” Strategic HR review. Volume 9, PP 27-32.
  10. Dian Schaffhausen, 2005 [online] available at http://www.sourcingmag.com/what-is-outsourcing/ assessed on 19.08.2017.

 

 

JOIN FREE TRAINING
I agree to have my personal information transfered to MailChimp ( more information )
Sign up to receive email updates on latest trading strategies , analysis & financial market updates
We hate spam. Your email address will not be sold or shared with anyone else.We Respect Your Privacy

Add a Comment

Your email address will not be published. Required fields are marked *

This site uses Akismet to reduce spam. Learn how your comment data is processed.