AP115 - Outsourcing Business Function

ADVANTAGES AND DISADVANTAGES OF
OUTSOURCING BUISNESS FUNCTIONS
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TABLE OF CONTENTS

ADVANTAGES AND DISADVANTAGES OF OUTSOURCING BUISNESS FUNCTIONS
INTRODUCTION...................................................................................................... 3
LITERATURE REVIEW.............................................................................................. 3
SCOPE OF OUTSOURCING IN BUISNESS..............................................................4
OBJECTIVES OF OUTSOURCING...........................................................................5
ADVANTAGES OF OUTSOURCING........................................................................6
DISADVANTAGES OF OUTSOURCING..................................................................7
CONCLUSION......................................................................................................... 9
REFERENCES........................................................................................................ 10
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ADVANTAGES AND DISADVANTAGES OF OUTSOURCING BUISNESS FUNCTIONS
INTRODUCTION
Outsourcing is defined as a work or a part of business function which is delegated to another
entity or person by a company. It can involve delegation of a service or a part of a
manufacturing process or any other aspect of a business (Yeboah, 2013). The processes or
segments of work which are outsourced to a firm may be carried on the site, i.e. within the
premises of the organisation, such as in case of heavy equipment handling ; or outside the
business area according to the contracted conditions. The primary factor encouraging
outsourcing is cost reduction and flexible terms (Pellicelli, 2012).It can involve simple
processes such as packing of goods, transportation services or more complex aspects like
manufacturing spare parts, handling of IT support, or marketing. Companies from diverse
sectors like telecom, e commerce, transport companies, law firms, food chains, restaurants,
and many others outsource some of their work to keep their costs under check while
focussing on their main segment. The process of outsourcing has been gaining popularity
with time, despite some of the uncertainties related to it. For example outsourcing companies
may let down during tight schedules and any delay can result to be costly for a firm. There
are many conservative organisations that prefer an integrated approach and refrain from
outsourcing. With the help of research done, analyses have been made for business owners
regarding pros and cons of outsourcing function in business. (Iqbal, 2013)
LITERATURE REVIEW
Outsourcing is fast becoming a regular feature for any business regardless of its size.
Increasing number of organisations is choosing to outsource one or many parts of their work
which has enabled them to utilise their manpower and expertise for their core task. It is
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ADVANTAGES AND DISADVANTAGES OF OUTSOURCING BUISNESS FUNCTIONS
emerging as a regular summit in the business community and has become a point of
discussion for researchers (Kahrović, 2015). The need for outsourcing may arise due to a
variety of factors which vary from business to business. The major motivating factors for
outsourcing are time saving, cost efficiency, and business strategy of the company. Small or
big businesses are motivated commonly due to the time and cost factors. (Anon., 2017) Any
small or medium organisation are susceptible to cost fluctuations as they do not possess
economies of scale , so they have to opt for outsourcing whenever a supplier’s costs for a
particular service is competitive and quicker than the current alternative. In today’s connected
economy, one cannot limit its scope to a small region, a company has to deploy strategic
management skills which can help them to grow their business and outsourcing provides the
most effective answer. By eliminating hiring of managerial personnel, a company can
significantly reduce its fixed expenses (Sonfield, 2014).Even when outsourcing is being
vastly adopted by many organisations, it must be deployed with caution as if an outsourcing
job is not carried correctly, it may cause loss of face and even customer loyalties; therefore
there is no assured success when a company outsources its tasks (Kremic, 2006).
Sometimes heavy cost cutting results in cost escalations later on. Thus, research literature and
academic theory has to be employed to review the scenario correctly, so that it can generate
the desired results for companies and their products/services.
SCOPE OF OUTSOURCING IN BUISNESS
People are getting more attracted in getting in house value added services along with strategic
management due to which outsourcing has gained much popularity nowadays. Various
service sectors like law firms, doctors, hospitals, colleges, etc. are adopting outsourcing for
delegating works to others and maximise their use of expertise. Business sectors which
provides outsourcing are IT firms that outsources its technical supports to other firms, labour
contractors provides labour to factories and related firms, transportation companies provides
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