Question

Management is often faced with the alternative of continuing to make a product (or offer a service) internally, or go to an external source and purchase the product (or use a third-party service provider). Search online news articles for a company that is considering outsourcing or already outsources a product or service.

1. Describe the company that is making the decision to outsource. What area of the business is the company looking to outsource, or did it already outsource?

2. Why did the company decide to outsource (or is considering outsourcing)?

3. List the revenues and costs that might be impacted by this outsourcing decision. The article will not list many, if any, of these revenues and costs; you should make reasonable guesses about what revenues and/or costs would be associated with the business operation being outsourced.

4. List the qualitative factors that could influence the company’s decision of whether or not to out- source this business operation. Again, you need to make reasonable guesses about the qualitative factors that might influence the company’s decision to outsource or not to outsource.

Answer 1

1) Outsourcing is a strategy by which an organization contracts out major functions to specialized and efficient service providers who ultimately become valued business partners. It is a business practice in which a company hires a third-party to perform tasks, handle operations, or provide services for the company.

Companies today can outsource a number of tasks or services. They often outsource information technology services, including programming and application development, as well as technical support. They frequently outsource customer service and call service functions. They can outsource other types of work as well, including manufacturing processes, human resources tasks, and financial functions such as bookkeeping and payroll processing. Companies can outsource entire divisions, such as its entire IT department, or just parts of a particular department.

Outsourcing business functions is sometimes called contracting out or business process outsourcing.

Outsourcing can involve using a large third-party provider, such as a company like IBM to manage IT services or FedEx Supply Chain for third-party logistics services, but it can also involve hiring individual independent contractors, temporary office workers, and freelancers.

Areas where business can outsource:-

• Administrative tasks. Scheduling, travel arrangements, data entry, typing, and other administrative tasks can usually be handled by a virtual assistant or administrative service.
• Lead generation and customer service.
• Accounting and financial duties.
• Marketing.
• IT operations.
• Human resources.

2) Companies often outsource as a way to lower costs, improve efficiencies, and gain speed. Companies that decide to outsource rely on third-party providers' expertise in performing the outsourced tasks to gain such benefits. The underlying principle is that because the third-party provider focuses on that particular task, it is able to do it better, faster, and cheaper than the hiring company could.

Given such benefits, companies often decide to outsource supporting functions within their businesses so they can focus their resources more specifically on their core competencies, thereby helping them gain competitive advantages in the market.

3) The recognized benefits of outsourcing include: increased efficiency (which can translate into an important competitive advantage), the reduced risk associated with running effective IT departments, controlled costs (by releasing capital for investment in other areas such as revenue-producing activities)

These benefits are enlisted below:

• Cost-effective
• Higher-level effectiveness
• Saves on Investment
• Cost-cutting on training and recruitment
• Round the clockwork
• Faster Results
• Overcomes fluctuation in workforce
• Tap Talent
• Risk Management

4)

Let's take a look at some of the Qualitative factors to consider for making outsourcing decisions for your business.

• 1) Cost Savings.
• ​2) Pricing.
• 3) Resources and Technology.
• 4) The Ability To Meet Deadlines.
• 5) Minimal Supervision.
• 7) Trustworthiness.
• 9) The Service Level Agreement.
• 10) Communication.