HI6008: Advantages and Disadvantages of Outsourcing Business Functions

This report delves into the advantages and disadvantages of outsourcing business functions, with a specific focus on IBM's practices. It explores the reasons behind outsourcing, such as cost reduction, skill acquisition, and improved operational efficiency, while also addressing potential drawbacks like replication, hidden expenses, security concerns, and managerial control issues. The analysis covers topics like focusing on core business activities, cost savings achieved through outsourcing, skill acquisition from specialized providers, customer satisfaction improvements, operational efficiency gains, and risk-sharing strategies. The report also examines the disadvantages of outsourcing, including replication of advantages by competitors, hidden expenses that may arise, safety and confidentiality risks related to data sharing, managerial control challenges, quality risks, and potential layoffs. The paper concludes by summarizing the overall impact of outsourcing on IBM and similar organizations, highlighting the importance of strategic planning and risk management in outsourcing decisions. Desklib provides access to a wealth of similar solved assignments and study resources for students.

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Table of Contents
Introduction.................................................................................................................................................1
Project objective..........................................................................................................................................2
Project Scope...............................................................................................................................................2
Literature Review........................................................................................................................................3
Reasons for outsourcing..............................................................................................................................3
Advantages..................................................................................................................................................4
Focus on the core business......................................................................................................................4
Cost saving...............................................................................................................................................4
Skill Acquisition........................................................................................................................................4
Customer satisfaction..............................................................................................................................5
Operational efficiency..............................................................................................................................5
Risk sharing..............................................................................................................................................6
Disadvantages.............................................................................................................................................6
Replication...............................................................................................................................................6
Hidden expenses.....................................................................................................................................6
Safety and confidential............................................................................................................................7
Managerial control..................................................................................................................................7
Quality risk...............................................................................................................................................7
Layoffs.....................................................................................................................................................8
Impact of outsourcing.................................................................................................................................8
Conclusion...................................................................................................................................................9
References.................................................................................................................................................10
Appendix...................................................................................................................................................14
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Introduction
Outsourcing is one of the techniques that are taken into consideration so that the expenses
can be reduced by transferring the functions of the company to the third part, instead of
conducting the activities in the business internally. In this strategy, the focus is given by various
organizations so that reduction can be made in the overall operating cost and also profits can be
achieved. In IBM there are many activities which are conducted.
It is seen that organizations outsource the functions of the company so that it can be
conducted smoothly. Manufacturing parts and human resources activities are outsourced.
Advantages and disadvantages of outsourcing will be explained in this paper. Outsourcing is also
done by IBM in various countries.
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Project objective
The main aim of the paper is to evaluate the advantages and challenges of outsourcing the
functions of the organization to the third party. The paper objective is to evaluate the
disadvantages and advantages in context to IBM company. It can be analyzed that at the time of
outsourcing the functions is can give negative impact also or can give a loss to the company. The
organization outsources the functions of the organization can give negative results on the
activities and the organization can also face the problem of data loss. If data is lost then it can
directly impact the overall satisfaction level of the customers.
Project Scope
The discussion will focus on the success and failure of outsourcing the functions of the
business. This report will also focus on the overall advantages and drawbacks that the
organization has to face when they outsource the functions of the business. It is important for the
company to consider the strategies at the time of outsourcing the activities. So, in this report, the
focus will also be given to the strategies that should be considered by the company when the
functions of the company are outsourced to the third party. Also, analyzes will be made on
various concepts of outsourcing which is given by the experts of the markets so that rewards and
limitations can be determined.
Literature Review
IBM is the biggest company who give focus on outsourcing the activities to the third
party. It is seen at the time of outsourcing the functions are also outsourced to the third-party
companies. It is an essential method that helps to reduce the overall cost that is taken into
consideration by the organization worldwide. Also, it is seen that developed countries also give
emphasis on the process of outsourcing (Gospel and Sako, 2010).
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IBM is one of the biggest American international technology companies that are
established in 1911. There are many activities conducted in the company like computing, cloud
programming and in information technology industry. Outsourcing is the best practice which is
considered by many companies so that activities can be conducted smoothly by shifting jobs and
tasks It can be analyzed that the organization has outsourced the functions of the business to the
third-party company from India to Singapore which has given a positive impact on the values
(Pierce 2011). The activities are contracted out so that third party can complete it.
Reasons for outsourcing
The company has more than 40 data center that operated the functions related to IT
sector. Outsourcing of a process is basically handing over the organization's internal process to
some other company. It helps the company to focus more on their business process and activities
which certainly reduces the operational costs of the process. There are many options available for
a company to outsource their business activities. It is evaluated that activities of the company are
given to the third party by focusing on the IT system and support is also given by the users.
The main aim of IBM to outsource the process is just to give more emphasis on the
quality of the customer service which also reduces the cost of operation. There are many activities
which are given to the third party so that it can be conducted properly. The activities related to
call center and also services to management. This also creates more and more opportunities for
temporary and permanent employment also enhances the skills of a labor. The company should
formulate the strategies and also focus on the grounds basis on which they are outsourcing the
activities. It should be ensured that the strategizing is done keeping in the mind the business that
is outsourced.
Advantages
The major benefit of outsourcing is that it is beneficial for the business and also helps in
achieving competitive advantage. The advantage is achieved by the companies and it also helps to
grow in the market. Many big companies, in the recent years, have been seen outsourcing their
process and have considered it as an important part of their business activities.
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Focus on the core business
Outsourcing is important for a company as it helps in implementing all the resources and
also makes the process more effective and efficient. The company merely gives focus on the
information technology so that manufacturing of other software can be done properly. This keeps
the process of IBM more effective. This effectiveness is maintained by IBM as it has successfully
outsourced the IT service globally (Han and Mithas 2013). It is seen that the hardware service and
quality have been improved as this process is not interrupted by the other activities conducted by
the company.
Cost saving
When it comes to cost-cutting, it can be seen that several operational costs involved in the
process are also minimized like infrastructure expense, maintenance expense and several other
expenses related to the workplace. Companies are getting an advantage when it comes to cost-
cutting as it becomes economical when the process is outsourced (Drucker, 2017).
Skill Acquisition
The company only outsources their business process to a particular company who has the
expertise in a specific field. It can be analyzed that the employees of the company have proper
skill and knowledge related to technology that assist to conduct the activities in a proper way It is
seen that company achieved the advantage by outsourcing the services related to IT services to the
40 data services worldwide (Gorla and Somers, 2014). It is seen that it will give assistance to the
company to accomplish overall goals and objectives. The services which are given can also be
modified.
It is evaluated that companies outsource many activities which helps them to achieve
positive results. It is seen when that the activities which are outsourced are given to other party to
complete. So internally training is not given to the employees as it helps to focus them on other
activities as stated by Sekaran and Bougie (2016),
Customer satisfaction
Satisfaction level is one of the important aspect for every company. If the customers are
satisfied then it can help to achieve success in the market. So, outsourcing gives positive impact
on the overall satisfaction level of the customers. At the time of outsourcing the activities, it is
seen that the issue which is faced by the organization is related to the high quality of the products
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(Zirpoli and Becker, 2011). It is evaluated that when the worker of the organization cannot
conduct the activities due to any reason then it is important for the company to appoint someone
who can complete it with efficiency. It is analyzed that the company has more than 3, 80,000
workers who are completing the assigned task on regular basis.
There are many employees who conduct the activities in call centers located in Singapore
and in many countries. It assists the organization to provide 24 hours services to the customers.
The activities conducted in the data center focuses on enhancing the satisfaction level of the
customers (Eggert, Böhm and Cramer, 2017).
Operational efficiency
According to Spohrer (2017), Outsourcing assists the organization to increase the
efficiency of the organization. This helps in proper maintenance of the quality of the company.
The focus is given by the workers so that operations of the company can be conducted in a right
direction. IBM has offered a good infrastructure that assists to focus on the overall objectives and
also helps to give direction to the data centers so that activities can be conducted smoothly.
Risk sharing
Outsourcing is one of the contracts that organizations give to the third party so that
activities can be conducted smoothly. If they are not able to conduct the activities in a proper
manner the company who outsourced can sue them in court. IBM tries to share their risk by
outsourcing the activities. It is seen that responsibility is also shared which help to conduct the
activities smoothly.
It helps the company to share the risks so that the quality which is offered can be good.
IBM focuses on the policies so that quality can be offered well and also the risk can be shared
with the other companies or with the third party (Solli-Saether and Gottschalk, 2015).
Disadvantages
By giving emphasis on the advantages it can also be analyzed that there are disadvantages
also at the time of outsourcing the functions of the business. By outsourcing the functions, it can
also give a negative effect on the organization and also they face an issue when the functions are
outsourced.
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Replication
According to Mourdoukoutas (2011), it can be analyzed that outsourcing is considered as
a replicate by the organizations. For instance: It is analyzed that IBM has reduced the cost by
outsourcing the overall services related to IT but the advantages achieved by the company are
same as from the competitors. Outsourcing the activity also introduces the new competitors for
the companies as it is considered by many IT organizations. Competitive advantage can be
attained if outsourcing of the activities is given to the company which is trustworthy and safe to
keep the information private.
Hidden expenses
When the functions of the business are outsourced it is analyzed that the company
focuses on rules and policies of the many companies and countries. For validating the agreement
of outsourcing there are various rules and regulations that are important for the company to
consider so that activities can be completed easily.
At the time of outsourcing if the activities are not completed properly then charges are
given by the third party but there are companies who have suffer from the charges which are
hidden. By focusing on the market regulations which are in India it is analyzed that the
organization focuses on the new rules and regulations and also it is important to implement the
structure related to an organization (Gruszewski et al., 2017).
Safety and confidential
It can be evaluated that to outsource the functions of the business can be the drawback for
the company. It is seen for organization information is one of the important factors and if it is
leaked then the loss can be seen on the overall revenue of the company. When the functions are
outsourced then companies share their data and their opinions which can result in the loss of the
privacy of the company. It is important to minimize the disadvantages so that targets can be
achieved by the company (Kshetri,2014)
IBM has to face the issue related to the privacy of the information with the customers
and also with the call centers who offer services to the customers. If there are no proper
regulations of one the data center then it can result in the leakage of the information of the
customers which could affect the activities of the company in a negative way (Sparrow, 2012).
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Managerial control
By giving focus on the agreement related to outsourcing it is seen that organization give
responsibilities and right to the third party so that activities can be conducted in an effective
manner. The company considers managerial control that is important so that operations can be
transferred in a proper way (Tunisini and Sebastiani, 2015).
The company who is outsourcing the activities cannot conduct the activities according to
the basic principles that should be followed and also they cater the customers who reduce their
focus on the tasks related to the organization. It is analyzed that IBM has also faced the same
problem various times as it is analyzed that data centers of the organization are situated in
Singapore, India, and Malaysia. So, it is seen that there should be proper control so that activities
can be conducted smoothly (González, Gascó and Llopis, 2016).
Quality risk
It is seen quality is the important factor on which focus should be given so that it can be
easy to conduct the activities according to the rules and policies of the company. If quality is not
provided by the third party then the mindset of the customers will change for the company who is
making the deal with the customers. So, outsourcing can also be the risk related with quality
(Hribar, Kravea, and Wilson, 2014)
Layoffs
According to Bordeman, Kannan, and Pinheiro (2014), it is seen that when the activities
are outsourced then company dismisses the workers who are conducting the activities in the
company. At the time of focusing on the planned process of the company, it can be evaluated that
layoffs are unavoidable. This can affect the working pattern of the workers who are conducting
the routine activities of the company. By giving emphasis on IBM it is analyzed ha more than
5,000 workers are dismissed in the coming few months. The decisions which are considered has
given impact on the image of the organization and also affected the overall productivity level.
Impact of outsourcing
There are various impact of outsourcing the activities of the company. The company has
affected the services of the customers and also resources to consider proper decisions. IBM has
done a proper research on more than 56 competitors and also with the help of the customers who
are not the IBM customers (IBM 2010).
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There are many benefits which consist of various aspects or elements that are affected (Figure 1):
 Future benefits: It is seen that if outsourcing agreement is long more profits can be
achieved. There are more than 70 percent of the companies with more than one year of
outsourcing agreement achieve more profits as shown in (figure 1.). It is important to have
connection with the third party so that advantages can be achieved by the company. If
outsourcing is done properly then positive impact can be seen on the image and also on
the profits earned by the company.
Research done by Mclvor (2010), stated that the advantages of outsourcing has given success
to IBM and also productivity level of the company. If other competitors are considered then it is
seen that satisfaction of the customers is essential and high in IBM.
Conclusion
By evaluating the report, it is analyzed that there are many organizations that outsource
the functions of the business. This provides many benefits and also increases the service of the
customers. IBM is one of the largest companies in outsourcing the activities and also the focus is
given on the guidelines so that outsourcing of the functions can be done in a proper manner.
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References
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Announcements. Unpublished Manuscript.
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Research Review, 35(8), pp.664-675.
Drucker, P.F., 2017. The Theory of the Business (Harvard Business Review Classics). Harvard
Business Press.
Eggert, A., Böhm, E. and Cramer, C., 2017. Business service outsourcing in manufacturing firms:
an event study. Journal of Service Management, 28(3), pp.476-498.
González, R., Gascó, J. and Llopis, J., 2016. Information systems outsourcing reasons and risks:
review and evolution. Journal of Global Information Technology Management, 19(4), pp.223-
249.
Gorla, N. and Somers, T.M., 2014. The impact of IT outsourcing on information systems
success. Information & Management, 51(3), pp.320-335.
Gospel, H. and Sako, M., 2010. The unbundling of corporate functions: the evolution of shared
services and outsourcing in human resource management. Industrial and Corporate
Change, 19(5), pp.1367-1396.
Gruszewski, R., Smith, B.H., Thresh, D.E., Van Bortel, J. and Esterman, M., 2017, August.
Uncovering Hidden Costs in R&D Outsourcing: A Case Study. In ASME 2017 International
Design Engineering Technical Conferences and Computers and Information in Engineering
Conference (pp. V004T05A025-V004T05A025). American Society of Mechanical Engineers.
Hribar, P., Kravet, T. and Wilson, R., 2014. A new measure of accounting quality. Review of
Accounting Studies, 19(1), pp.506-538.
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