Advantages and Disadvantages of Outsourcing: A Case Study of IBM

This paper discusses the advantages and disadvantages of outsourcing in the context of IBM. It covers the reasons for outsourcing, benefits, drawbacks, and impact on the company. The paper also includes a literature review on outsourcing.

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Table of Contents
Introduction......................................................................................................................................1
Project objective..............................................................................................................................1
Project scope....................................................................................................................................1
Literature review..............................................................................................................................1
Why functions of the company are outsourced?..........................................................................2
Advantages of outsourcing...........................................................................................................2
Drawbacks....................................................................................................................................5
Impact of outsourcing..................................................................................................................8
Conclusion.......................................................................................................................................8
References........................................................................................................................................9
Appendix........................................................................................................................................11
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Introduction
Outsourcing consists of foreign and domestic contracting and also includes the
transferring of the business process .Outsourcing is considered as a practice that helps to focus
on managing the control of the public sector and private enterprise. It is a business practice in
which the parties are hired outside the company so that services and activities can be completed
in a proper manner. This is a method that helps the company to achieve growth in the
competitive market. It has been analyzed that outsourcing is done on the domestic as well as one
of the international platform so that operations can be managed.
This paper will emphasize on the advantages and disadvantages related to outsourcing so
that activities can achieve success in the market. The discussion will also be based on the
company which is IBM.
Project objective
If the emphasis is given on the entire discussion it can be analyzed that the aim is to focus
on the advantages and disadvantages of outsourcing related to IBM Company. When outsourcing
of the activities takes place it has been seen that there are various advantages and disadvantages
related to it. In this literature review will also be done by focusing on the concept of outsourcing
related to IBM.
Project scope
There are various advantages and disadvantages in context to the operations. The scope
of outsourcing is wide and it helps the companies to maintain the image in the market.
Outsourcing can assist the company in accomplishing goals and objectives.
Literature review
According to Aubert, Kishore and Iriyama 2015, outsourcing is a technique which is
considered by the companies so that responsibilities can be transferred to the third party. It also
helps to attain positive outcome which directly impact the overall operations of the organization.
Outsourcing also helps to maintain efficiency in the overall operation of the company. It is the
duty of the third party to maintain the process of outsourcing as they accept the responsibilities
which are transferred by the first party.
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IBM is also considered as the biggest company who emphasize on outsourcing the
activities so that activities can be managed in the right manner. If the activities transferred to the
third party are not performed in a proper way then impact can be seen on the overall growth of
the company. The responsibilities are transferred by focusing on making the agreement with the
third party. When third party makes the agreement they agree to complete the activities
according to the expectation level.
IBM is considered as one of the largest company that takes into consideration the
technique related to outsourcing. The company is the biggest American international
technologies company that established on 1911. Sector in which company deal are cloud
programming and computing. Outsourcing is the popular approach that is taken into
consideration by the organization so that operations which are given to the third party can be
controlled in an effective manner. The operations of the company are outsourced in Singapore
and India. Just due to these outsourcing in the market, the company achieved success in the
competitive market.
Why functions of the company are outsourced?
Bayramusta and Nasir 2016 stated that, outsourcing is a technique which helps in
transferring the activities of the company to the third party. It has been examined that there are
more than 40 data centers of the company and the operations are related with the IT sector. It is
also linked with the operations of the company and by outsourcing the services which are
rendered can enhance the customer satisfaction.
The aim of the organization in context to outsourcing is related with maintaining the
quality of the services rendered in the market. It has been analyzed that outsourcing process
considered by the third party also enhances the rate of employment. It is necessary for the
company to emphasize on considering the strategies so that implementation of the operations can
help to benefits. There are various advantages concerned with outsourcing.
Advantages of outsourcing
When the operations of the company are outsourced then there are various advantages
that can be derived by the organization. It has been analyzed that outsourcing is the best
technique that can assist in attaining the overall competitive advantage. If outsourcing technique
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is not considered by the company then it can be difficult to maintain the service quality which is
rendered in the market.
Specialized workers
According to Maglio, Kwan and Spohrer 2015, it has been analyzed that operations of the
company are handover to the third. The responsibilities which are given to the third party are
hand it over to the experts who have knowledge of the particular field. The operations which are
offered to the third party are completed by focusing on maintaining the services which are
offered to the customers or in the market. IBM emphasizes on offering the responsibilities to the
parties so that the overall activities of the company can be managed in a proper manner.
Focus on technology and infrastructure
According to Drucker 2017, it has been analyzed that when the organization emphasizes
on the outsourcing then focus is less in context to infrastructure as the responsibility is offered to
the third party. It has been analyzed that it helps in considering the technologies which helps to
attain growth in the market. Latest technologies are not so necessary but it has been seen that
company focuses on the outsourcing to the specialized person. IBM also emphasizes on
outsourcing so that investment in context to technology and infrastructure can be minimized and
it can also help to maintain the growth in the competitive market.
Efficiency can be maintained in the work
When IBM outsources the operations to the third party, it has been analyzed that
emphasis is given on maintaining the services quality so that customer satisfaction can be
enhanced and also it helps in maintaining goodwill in the market. According to McNeill 2015,
the projects are also given to the parties who emphasis on maintaining the quality as it can bring
efficiency towards work. With the technique of outsourcing it has been seen that company can
easily manage the internal activities of the company. This will also assist in maintaining the
productivity level of the company. It has been analyzed that services which are finished by the
third party helps to maximize the satisfaction level and it more customers towards the services of
the company.
Risk sharing
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Rajaeian, Cater-Steel and Lane 2017, stated that, risks are shared by the company with
the help of outsourcing. It is important for the company to manage the risk so that it can be
simple to achieve goals and objectives in an effective manner. The sharing of the responsibilities
can be done with the help of outsourcing. It has been seen that through outsourcing the burden
of the company can be shared with the third party. Efficiency towards the activities is maintained
when company focuses on outsourcing the functions of the company.
It has been analyzed that it is a type of an agreement which is taken into consideration
and the outsourcing company tries to maintain the service quality which is rendered by the third
party. In the agreement related to outsourcing it has been analyzed that rules and regulations are
taken into consideration so that targets of the company can be attained. IBM also share the risk
with the third party as it also focuses on maintaining the relations. When the activities are
outsourced there are also various rules and regulations that are important to be considered by the
company so that activities of the outsourcing company can be maintained.
Effect on the cost related to recruitment and operational
IBM emphasizes on minimizing the overall cost of the operations and also the cost
related to recruitment by focusing on the process of outsourcing. According to Bucher, Raber
and winter 2015, it can be evaluated that at the time of outsourcing the operation cost is also
shared with the company to whom the outsourcing of the functions are done. IBM also focuses
on the managing the structure of the company so that objectives can be achieved. If the
operational costs are minimized then it assists in attaining the competitive advantage in a proper
manner.
Focuses on resource maintenance
When the functions of the company are outsourced then it is important for the company
to consider the specialist so that they can give best services to the customers. According to
Rosemann and vom Brocke 2015, it has been analyzed that the employees of the organization
emphasizes on considering the profits by maintaining relations with the customers. The
outsourcing of the activities done by IBM can help to analyze the resources. Technology is also
updated which can help to bring efficiency towards work. It has been evaluated that skills
should be maintained of the experts so that utilization of the resources can be done in an
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effective manner. Also if there is proper utilization of the resources then positive impact can be
seen on the market share of the company.
Core business activities
According to Mukherjee 2017, It has been examined that when core functions are
outsourced to the third party then impact can be seen on the activities of the company. The
activities which are outsourced by the company are related to human resource and also with the
process related to manufacturing. These activities affect the growth of the company and also
maintain the customer satisfaction. The strategy which is considered by the company relates to
maintaining the services so that customers can be satisfied with the services. By emphasizing on
the strategy, it can also help to maintain and offer good services to the employees. Therefore, it is
necessary on focus on these strategies so that service can be offered to the employees in an
effective manner.
Drawbacks
There are various drawbacks which are concerned with outsourcing the activities of the
company. If there are advantages then there are various drawbacks related to it. The first
drawback is concerned with the attention of the customers on which focus should be given by the
company.
Attracting customer’s attention
According to Koo et al., 2017, it can be analyzed that when the company consider the
technique of outsourcing then it is necessary to emphasize on the needs which should be offered
by the company. In this situation, it has been seen that customer’s attention should be enhanced.
The company emphasizes on outsourcing so that operations can be managed and also it is not
possible to complete the activities on time by the company so they emphasize on outsourcing. It
is considered as one of the disadvantage that enhances the satisfaction level of the customers.
IBM outsources the activities related to manufacturing so that it can be finished on time and also
the need of the customers can be analyzed in a proper manner.
Safety from the risks
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It has been evaluated that it is important for the company to manage the information. It
has been seen that to manage the tasks with safety of the information is important. At the time of
outsourcing of the activities it is important for the company to maintain privacy of the
information with the third party so that customer’s satisfaction cannot be affected. According to
Kshetri 2014, the outsourcing activities related to the company is payroll, manufacturing and
human resource operations. It is essential for the company to emphasize on contract at the time
of making agreement with the third party, as it secure the information in a proper manner and
also without any misuse of the information. It has been seen that if one data center do not follow
proper rules and regulations then it can leak the information of the customers and it can
negatively affect the routine activities of the company.
Hidden expenses
According to Martin and Poussing 2014, it can be seen that at the time of outsourcing it is
important for the third party to focus on rules and policies so that it can be simple to accomplish
goals and objectives in proper. IBM focuses on the ownership of the services or the operation but
third party has the responsibility to maintain the control so that problems which arise can be
resolved easily.
Therefore, activities which are outsourced can arise many issues related to proper control,
queries of the customers. If these issues are not resolved in immediate basis then it can generate
negative feeling and can give impact on the overall goodwill of the company. By focusing on the
entire market regulations of India it has been seen that the organization take into consideration
various rules and policies which are important to be implemented in context to the organizational
structure.
Replication
It can be examined that outsourcing is also the technique that can be replicated by various
organizations. The companies can attain the competitive advantage by focusing on the process of
outsourcing. The focus is on maintaining the competitive advantage by considering the strategies
considered by its competitors. For instance: IBM reduced the cost of outsourcing but the
competitors focused on achieving similar type of advantages like from dell. The outsourcing
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strategy can also be introduced in the market as it introduced the new competition level and also
take into consideration various IT companies.
Managerial control
According to Miranda and Kavan 2017, By focusing on the agreement related to
outsourcing, it has been investigated that the organization transfers the overall rights and duties
to the third party so that it can be managed in a proper way. Proper managerial control is taken
into consideration by the company which is important to be managed by the company. The
company who accepted the agreement of outsourcing can fail to perform the activities according
to the rules of the company and they have many customers through which emphasis can be
reduced on the entire tasks. IBM also suffered from the same problems many times as the data
center of IBM are situated in India, Singapore and Malaysia. Therefore, it is necessary to focus
in maintaining proper control so that operations can take place smoothly.
Quality risk
According to Hribar, Kravet and Wilson 2014, outsourcing is known as business that
affects the image and also the standard quality. For example: if the issue relates with the faulty
part which is taken into consideration by the manufactured company then it can create negative
image of the company in the market. So, in this case the company should charge the expenses
related with outsourcing so that these types of issues does not take place in future.
Language obstacle
According to Wuyts, Rindfleisch and Citrin 2015, when the organization focuses on
outsourcing the operations of call center the issue that can take place is language. If there is
problem related to language then customers will not be able to communicate with each other in a
proper manner. It will also create dissatisfaction to the customers. There are customers who are
not satisfied with the services and stopped using the services of the company. The activities of
IBM are outsourced in Singapore and Malaysia.
Lay – offs
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It has been stated by Spohrer 2017, when the activities of the company are outsourced it
dismisses the workers who are considering and maintaining the operations of the company. IBM
focuses on considering the planned method so that layoffs can be unavoidable. This can also
affect the working pattern of the employees. By focusing on IBM it has been examined that there
are 5,000 employees in the last few months who are dismissed. The effect can be analyzed on the
overall working pattern of the company.
Impact of outsourcing
It has been seen that IBM has achieved a competitive advantage if comparison is made
with competitors. The competitive advantage is attained by the company when activities are
outsourced to the third party. The affect is also seen on the entire customer service and also the
resources in context to decision that are made. IBM focused on proper analysis by various
scientists over 56 competitors and also with the 38 Non IBM customers (Gerbl, McIvor and
Humphreys, 2016). The scientist stated that there should be proper relation when the
outsourcing of the services is done as it emphasizes on bringing improvisation in the activities.
As stated by the researchers, there are many benefits related to outsourcing that affect the
following factors
a.) Future benefits: The outsourcing of the operations has affected various
benefits. It has been analyzed that agreement related to outsourcing can help to increase
the profits and with this affect is seen on the income and growth of the organization.
b.) Income before interest and taxes: there are various organizations that can
attain the growth if comparison is made with the competitors prevailing in the
competitive market.
According to Tunisini and Sebastiani 2015, It has been seen that there are benefits of
outsourcing in context to the IT function of the company. IBM has achieved growth when
outsourcing of activities is considered and also the emphasis is given on the strategies that can
help to achieve goals. IBM emphasizes on maintaining goodwill in the market with enhancement
in the entire productivity level of the company. If competitors are taken into consideration then it
has been seen that customer satisfaction is an important factor which is considered by IBM only.
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The strategy related to IBM should be taken into consideration so that growth can be attained. It
has been analyzed that it also helps in maintaining the efficient on the global platform.
Conclusion
By focusing on the report, it has been concluded that there are many organizations that
focus on outsourcing the activities. Their main aim is achieve growth and maximize their profits.
IBM is also considered as the popular company that emphasizes on considering the process of
outsourcing and also clear guidelines are given by the company so that image can be maintained.
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References
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Appendix
Figure 1: outsourcing business impact
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