Advantages and Disadvantages of Outsourcing Business Functions

This report discusses the advantages and disadvantages of outsourcing business functions. It covers the scope, literature review, advantages, and disadvantages of outsourcing business functions.

Running head: BUSINESS RESEARCH
Business research
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Table of Contents
Introduction......................................................................................................................................3
Project objective..............................................................................................................................3
Project scope....................................................................................................................................3
Literature review..............................................................................................................................5
Outsourcing the business functions..............................................................................................5
Advantages of outsourcing the business functions......................................................................6
Disadvantages of outsourcing the business functions................................................................10
Conclusion.....................................................................................................................................12
References......................................................................................................................................13

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Advantages and Disadvantages of Outsourcing Business Functions
Introduction
The report is prepared to discuss about outsourcing the business functions considering its
advantages and disadvantages related to it. The business process and functions’ outsourcing
means management of the internal business functions such as human resource management,
financial and accounting, front office outsourcing along with providing better customer related
services to enhance the efficiency of the organization. Few of the benefits of outsourcing the
business functions are Better control over the capita costs, reduce costs of labor management,
focus on the core business functions and processes and lesser amounts of risks faced in business
(Solakivi, Töyli and Ojala 2013).
Project objective
The main objective of the report is to evaluate the advantages and disadvantages of
outsourcing the business functions.
Project scope
There is quite a good scope for conducting the project, because a large numbers of
benefits as well as drawbacks are obtained by outsourcing the business functions. The business
functions’ outsourcing could not only manage the business operations and processes with the
involvement of a third party service provider, but could also facilitate the manufacturing and
production processes along with outsourcing the larger segments of the supply chains. The
internal operations would include human resource management, finance and accounting
activities along with customer related services to ensure effective business operations and

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fulfillment of the needs and expectations of the customers too (Willcocks and Cullen 2013). The
outsourcing of the business functions could allow for knowledge process outsourcing, at the
same time manage legal process outsourcing for combining a wide pool of talent, and maintain
workforce efficiency.
There is immense scope for managing the project because of some of the major benefits
including the enhancement in company’s flexibility and direct control over the quality of
products and services offered by the business organizations. The services offered through
business functions outsourcing are by the vendors on a fee-for-service basis, which allows for
increasing the organization’s flexibility and even transforming the fixed costs into the variable
costs. By transforming the fixed costs into variable costs, it would become easy for the
organizations to respond to the changes in capacity of the organization and increase the ability
not to spend much on the assets (Gurung and Prater 2017). The companies could focus on the
core competencies, which would further create enough scopes and opportunities for meeting the
demands of the bureaucratic restraints and develop the core business processes with much ease
and effectiveness. This would create more opportunities for the organization to develop positive
relationships with the customers, furthermore maintain product leadership and operational
excellence to gain competitive advantage in business. It would speed up the business processes
and make effective utilization of the supply chains to enhance the efficacy of the manufacturing
and production processes too (Brown, Sturgeon and Cole 2013). The premature internal
transition related issues would be overcome, which could enhance the flexibility of the
organization and maintain steadiness in the organizational life cycle, furthermore obtain the
speed and agility to become successful in terms of profitability and competitive advantage
(Caruth, Haden and Caruth 2013).

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Literature review
Outsourcing the business functions
The outsourcing of business functions is mainly done for reducing the costs of labor
management and improving the management and allocation of resources properly for ensuring
better manufacturing and production processes. Dolgui and Proth (2013) stated that the
outsourcing of the business functions could also allow for directing the focus on the core
competencies as well as handle the resources for proper management of tasks at the
organizations. The business organizations mainly outsource the business functions for
controlling the operational costs and improving the company focus on obtaining the best class
facilities and managing the internal resources properly (Dolgui and Proth 2013). The
maximization of the use of external resources would be possible, which would increase the
chances of streamlining the business operations and share the tasks in order to lessen up the time
consumption for the project undertaken.
There are various requirements for successful outsourcing of the business functions and
few of the major areas that should be focused on could be the clarification of business goals and
objectives, strategic vision and plan, selecting the right vendor and making sure to manage the
vendor agreement plan properly. There should be open communication and proper leadership
skills present among the manager of the organization to handle the critical issues and make
necessary financial adjustments. With the help of proper leadership support, it would be easy to
outsource the business functions as well as the human resources, i.e., the employees, promote
effective communication and teamwork and furthermore achieve the business objectives (Iqbal
and Dad 2013).

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For example, Woolworths Australia has focused the requirements of open
communication to manage changes considering the outsourcing of functions, which is considered
as fundamental to the success of the outsourcing program and accomplishment of business goals
and objectives. The senior management of Woolworths focused on formulating the goals and
objectives of outsourcing and communicated the processes properly to ensure proper exchange
and flow of information along with successful allocation of resources too. It could also be found
that Woolworths a large number of staffs were transitioned to the employment with WiPro,
which assisted in the assigning and deployment at the company and even eased down the
management roles and responsibilities (Liu and Wang 2014). The roles and responsibilities were
shifted to an outsider playing the management role, which further facilitated betterment of
decision making, management of resources, both human resources and financial resources with
ease. The company even was found to outsource the truck driver jobs to ensure aligning the
transport services with the other retail stores in Australia. This would not only enhance the
process of distribution but would also allow the company to generate more revenue in business
(Sivakumar, Kannan and Murugesan 2015).
Advantages of outsourcing the business functions
One of the major advantages of outsourcing the business operations could be the
speeding up of business operations and enhancing the flexibility of the organizations. With the
outsourcing of business functions and systems, many large companies have managed to retain
the agility and speed to improve the business operations’ efficiency and even reduced the costs
of business operations largely. This has not only focused on the key drivers of value, but has also
enabled successful; management of customers’ relationships and brought operational excellence
(Butler and Callahan 2014). The companies could become less constrained by the large amounts

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of expenses made for managing the human resources and also for buying the equipments and
machineries required to make the manufacturing and production processes successfully. Through
business process and functions outsourcing, it has become easy for the companies to leverage the
technology stacks and even implemented the right quality improvement techniques for
maintaining production of good quality products and services. According to various evidences, it
could be understood that the four major functions to be considered while outsourcing the
business functions including the marketing, sales, human resources and accounting (Pearce
2014).
According to Han and Mithas (2013), to grow business, every company needs to manage
the marketing approaches properly and for the purpose of developing a strong brand name and
image, furthermore manage the lead generation initiatives and adopt social media strategies to
market the products and services successfully. All these major components should contribute to
the successful growth, development and momentum achieved by the company. Often it is seen
that the marketing techniques incur a huge amounts of costs and the marketing professionals are
also difficult to find out who can implement the marketing strategy properly without spending
much on the resources that are outsourced (Han and Mithas 2013). Thus, it had been important to
outsource the marketing functions to a reputed and established organization, which could be
skilled and knowledgeable within the particular industry. By providing necessary samples and
references, it would be much more convenient to outsource the business functions, furthermore
meet the targets within the allotted time (Oshri, Kotlarsky and Willcocks 2015).
For a physical store or retail outlet, there might be difficulties in outsourcing the sales
functions. Though in case of B2B or business to business approach, the products and services
could be sold properly by utilizing the right sales strategy with the utilization of sales resources

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that should be outsourced. The sales cycle could be outsourced by enabling proper control over
the resources, furthermore would lessen up the complexities and business issues, without putting
pressure much on the expenditures made by the organizations in Australia (Mukherjee, Gaur and
Datta 2013).
Human resource management is considered as one of the most important aspects of
enhancing the business operations’ effectiveness and for bringing out the best productivity to
increase the sales and profit level. Recruitment and selection of the skilled individuals could
sometimes be quite complex during the growth and development of an organization. It would be
essential for forming an internal human resource team for managing the functions of recruitment
and selection and ensure that the costs of managing the human resources could be reduced to a
certain extent. The outsourcing of the human resources could be done by finding a suitable
recruitment agency who could work according to the needs and preferences of the organization
and access the databases consisting of the most suitable and qualified candidates prior to the
recruitment and selection processes (Sturgeon et al. 2013).
The accounting and financial management are other important aspects for making proper
budgetary plan and ensuring that the costs can be kept under control. The outsourcing of
accounting operations could be considered as a business functions outsourcing activity that
would save a lot of time and money and reduce the chances of risks furthermore. A team
comprising of experts should be selected from a reputed and established organization who could
deliver much more experience and skills. It could be more scalable as well as extract the best
skills, knowledge and expertise of the expert team to obtain the resources properly and
technology at disposal (Schniederjans, Schniederjans and Schniederjans 2015). The streamlining
of processes would be possible along with speeding up the processes and reduced risks and

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errors experienced all throughout. Therefore, these could be the major advantages of outsourcing
the business functions and all these activities would even save a considerable amount of money
as well as time. There would be no such complexities arising regarding the absorption of benefits
of the employees and better scopes would appear for gaining the best quality resources by
outsourcing the business functions (Albertoni and Elia 2014).
The business functions’ outsourcing had allowed the contracting of business functions,
operations and processes to the third party providers to reduce the costs of operations and even
allowed the companies to gain competitive advantage in business. Outsourcing a particular task,
job or even the functions and system could be beneficial as well as harmful for the business
organizations and so careful consideration of the benefits or drawbacks that might be obtained
should be assessed at first (Hill, Jones and Schilling 2014). The major advantages of outsourcing
the business functions could be improved focus on the core business activities and even analyze
the strengths of the employees through monitoring their performances. This would allow the
employees to understand their own roles and responsibilities as well as work as an unit to
develop strategies for sustaining in the future (Morschett, Schramm-Klein and Zentes 2015).
Other benefits included the increased effectiveness of business operations, which had enhanced
the ability of the organizations to become more productive and profitable through delivery of the
best quality products and services. The costs were kept under control for organizations like JB Hi
Fi, Woolworths and Myer by releasing the capital to make investments in various other business
areas. This would allow for making necessary changes in those areas and improve those to
ensure successful business functioning and better reach to its customers and resources (Johnson
2014). The business functions or processes’ outsourcing had also lead to the enhanced ability of
accessing the resources, capabilities and facilities that might not have been accessible previously

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by these companies. Leveraging the knowledge, skills and expertise is also considered as another
major advantage of outsourcing the business functions, which can enable the business
organization to provide better quality products and services to its customers, furthermore achieve
competitive advantage within the business environment (Klimovets 2015).
Disadvantages of outsourcing the business functions
Though there could be various benefits of outsourcing the business functions and
systems, still there had been few drawbacks or disadvantages as well. He major disadvantages of
business functions’ outsourcing cold be the lack of timely service delivery, lack of security and
confidentiality, less flexible business operations, difficulties in managing the resources
sometimes and even the instability, which often might result in degrading the business
performance. Though outsourcing the business functions could result in reducing costs of
operations and better management of supply chain and resources, still there might be various
challenges associated with the hidden costs and layoffs of the local employees. To manage the
offshore relationships, there might also be complexities related to the different culture, languages
and time zones as well. Sometimes, the outsourcing of business functions could lead to lack of
control over the business operations and processes and even problems might arise regarding the
quality and turnaround time (Mathur Jain and Khurana 2013). The expected performance
standards might not be achieved as well as the human resources should be affected as well.
Other major disadvantages of outsourcing business functions could be the exposure of
confidential data and information. With the business outsourcing, the important data and
information were also transferred to the third party vendors, which could be exposed and fall in
wrong hands. The payroll, selection and recruitment processes when outsourced, could lead to
the emergence of certain risks such as exposing the confidential data and information to the third

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party and it could even cost a lot of money for the business organizations to overcome any issues
faced associated with it. The deliverables might not be synchronized properly, which could be
another major problem because the right third party vendor or partner should not be chosen
(Solakivi, Töyli and Ojala 2013). This not only hinders the manufacturing and production
processes, but also can create problems regarding late delivery of products and services to its
customers, poor quality products and not deploying the roles and responsibilities of the workers
properly within the workplace of the Australian business organizations. There were lots of
hidden costs which often were ignored including signing of a contact related to the management
of business across the international boundaries, which could cause serious threats in business and
create risks of business loss and failure (Willcocks and Cullen 2013). Lack of focus on the
customers’ needs and preferences should be considered as another major disadvantage faced by
the companies while outsourcing the business functions. The third party vendors often face
difficulties in focusing the tasks that were needed to be performed by the organization, due to
which, the customers’ needs and expectations remain unfulfilled, which could decline the sales
revenue and prevent achieving the business objectives appropriately (Gurung and Prater 2017).
By assessing all these advantages and disadvantages of outsourcing, it could be
understood that it would be important to understand the significance of the tasks and then take
into consideration the benefits and drawbacks that might be achieved. It could not only allow the
business to remain profitable through business process and functions’ outsourcing, but would
also improve the business performance (Brown, Sturgeon and Cole 2013).

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Conclusion
From the report, it could be understood that outsourcing of business functions could bring
both advantages and disadvantages for the businesses all over Australia. Outsourcing the
business functions was mainly done by the business organizations to reduce the cost of
operations, enhance the supply chain operations’ efficiency and ensure better flexibility,
swiftness and enhanced skills and expertise management. It could be achieved by recruiting and
selecting the right candidates as part of the organization, which could streamline the processes at
a faster rate and deliver the best quality output. It though must be kept into consideration hat
these activities could cost huge amount of money, which should be overcome by handling the
functions to a third party vendors and here the outsourcing could be beneficial. The
disadvantages were though experienced as well such as lack of consistency if focusing on the
customers’ needs and requirements, lack of synchronizing the deliverables properly and risks
associated with the exposure of private or confidential data and information.

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