Using the example of one or more types of outsourcing (IT, HR, etc) review the pros and cons of outsourcing and examine its implications for future firm strategic direction.
Outsourcing has become an increasingly popular strategic tool for worldwide organizations. Due to two key phenomena such as technological advances and globalisation, most organizations have be forced to continuously produce goods and services in higher qualities and lower prices. Since the benefits of outsourcing were revealed, it has become an increasingly widespread strategic tool among organizations. A survey reports that up to 90 percent of Australian employers had out sourcing at least one activity ...view middle of the document...
Motivations for Outsourcing
Based on a literatures review, there are several reasons for organizations to pursue outsourcing services; they can be classified into at least five primary reasons:
Access to specialized expertise
When the organization decides that an vendor can perform the assignment better than the internal department, the motivation to outsource the activity is high (Davidson, 2005). For example, small-sized firms, in particular, might not have sufficient resources and time to develop specialists who are fully informed about the legal requirements of HR programs; they may outsource all of their retirement-related programs. At the same time, they can also reduce their legal liability or level of risk (Charles, Stuart & David, 1999). Organizations may outsource in some unusual circumstances, such as during a strike or a natural tragedy or to coordinate a major task, the demands of which exceed the capacity of in-house HR departments (Conklin, 2005).
Access to technology
Advanced technology has been another motive for outsourcing. Due to organizations want to improve technical service in lower cost, yet not find technical talent in-house, external provider may provide an access to handle or answer employee inquiries in shorter transaction time (Belcourt, 2006).
Despite the fact that some vendors may not provide the specialised knowledge or technology that the business may desire, they may provide their services at lower costs than in-house operations. That may be an effective selling point. Nowadays, most organizations are eager to cut costs; this serves as the most an eye-catching point for them (Davidson, 2005).
When the organization determines that the service provided by the internal or external supplier has failed to maintain its commitment or is inefficient, then the organization may invite a new supplier to compete with the existing supplier to provide the service for the same operation; or the organization may refuse to renew the contract. This institutes a process, market discipline, that guarantees that the supplier is providing the price and quality that aligns with what the current market demands (Hill, et al., 2007:205).
Organizational development and strategic focus
Other proponents point out that outsourcing could help to alter the traditional way in which business owners think so as to enhance the ability of the organization to learn the latest operation method in order to produce new capabilities or more resources to pull into the core-area or at least to maintain its competitiveness. Besides, outsourcing some HR functions, for example, non-strategic routine administrative tasks, can save time for in-house HR expertises, and allow that department to move toward a strategic role (Stone, 2005: 61).
Advantages of Outsourcing
Human resources outsourcing (HRO) is one of the fastest-growing industries, and it keeps expanding, globally. To...