Analyzing Outsourcing: A Business Research Report on its Impact

This project report delves into the multifaceted world of outsourcing business functions, examining both its advantages and disadvantages. It highlights the strategic importance of outsourcing, particularly for startups and growing firms, and explores benefits such as expert operations, cost reduction, concentration on core business activities, enhanced innovation, and effective time management. The report also addresses risk sharing, geographical dispersion, simplified project management, and improved work relationships as potential upsides. Conversely, it thoroughly investigates the drawbacks of outsourcing, including failure of internal expertise, degraded management control, succession planning risks, proprietary data risks, hidden costs, potential for shared financial troubles, public backlash, and loss of information. By comparing and contrasting various academic sources, this project provides a comprehensive overview of outsourcing, emphasizing the need for careful consideration and strategic implementation to maximize benefits and minimize potential complications.

Running head: BUSINESS RESEARCH
Business Research
Name of the Student:
Student ID:
Author Note:

1BUSINESS RESEARCH
Table of Content
1.0 Introduction..........................................................................................................................2
2.0 Project Objective..................................................................................................................2
3.0 Project Scope........................................................................................................................2
4.0 Literature Review.................................................................................................................3
4.1 Advantages of Outsourcing Business Functions..............................................................3
4.2 Disadvantages of Outsourcing Business Functions.........................................................6
5.0 Conclusion............................................................................................................................8
6.0 References............................................................................................................................9

2BUSINESS RESEARCH
1.0 Introduction
Over the bygone years there has been a great amount of development in the world of
business. It is noted that with a growth and modernization of companies, the management
tend to outsource functions. Moreover, outsourcing is recognized as one the most crucial
aspects that not only benefit start-ups, but also act as a helping hand to growing firms
(Stanfield and Thompson, 2014, pp. 331-349). As compared to activities performed within an
organization, the concept additionally provides several benefits. In addition to building up
external relations with service providers, enterprises tend to enter into partnerships as well.
With a growth of outsourcing in the corporate world, the feature is now recognized to be of
strategic importance. Stanfield and Thompson (2014, pp. 331-349) also stated in their article
that being a part of a company`s fundamentals, outsourcing also has certain requirements that
needs to be fulfilled. However, outsourcing also tends to have several complications and
issues that immensely affect the smooth functioning of a firm.
This particular project focuses on the various advantages and disadvantages of outsourcing
business functions. In order to understand the concept in a detailed manner several journals,
articles, books and other secondary sources have been used. Further, the report along with
comparing and contrasting the previously published materials, also tend to focus on filling up
literature gaps.
2.0 Project Objective
The principal objectives for this project are the following:
1. To learn about the various advantages of outsourcing business functions.
2. To learn about the various disadvantages of outsourcing business functions.
3.0 Project Scope
The aspect of outsourcing in the modern world is a widespread aspect and hence needs a
careful understanding for analysis. It is noted that various reviewed sources such as journals,

3BUSINESS RESEARCH
books and articles have been utilized for this matter. Additionally, the project tends to have a
real life approach as well. In addition to depending on published works, the report
concentrates on highlight important subtopics, getting a detailed insight and thereby come to
a proper conclusion.
4.0 Literature Review
4.1 Advantages of Outsourcing Business Functions
As per Verma, Singh and Gupta (2013, p. 12), outsourcing functions in a business is of
strategic importance. It is noted that the multi-dimensional aspect can be broken down into
several individual parts. Further, benefits of the aspect can also be broken down into smaller
categories depending upon the functions. Peck (2017, p. 173) summarizes the various pros of
outsourcing into five parts: lowered production cost, tax evasion, relational rents, strategy
oriented, and flexibility. On the other hand, the journal by Smogavec and Peljhan (2016, pp.
127-131), distinguishes the various benefits offered by the feature in the following manner:
1. Expert Operations: It is with the help of experts that a company can achieve greater
results. Outsourcing enables a firm to build up stronghold relationships with
professionals of different field. In addition to a rise in capabilities, external service
providers help firms with technical know-how and investments. Moreover, skill,
competency, control and managerial efficiency also rise (Parlour, 2016, p. 89). With a
planned and well coordinated outsourcing of function, enterprise become more
competitive and gain stability.
2. Cost Reduction: Unlike the work of Peck (2017, p. 173), the journal of Smogavec
and Peljhan (2016, pp. 127-131) concentrates on a detailed discussion on this
characteristic of outsourcing. It is noted that along with production expenses, there is
downfall in operational costs. Apart from lowering working capital and unnecessary
expenditure, outsourcing helps to develop tax efficiency of organizations. On the

4BUSINESS RESEARCH
other hand, there is also a increase in employment and management capacities along
with cut-down of process investments. It is noted that, the feature also ensures
lowering of overhead costs as well. With a downfall of spending by the
administration, there is a consequent rise in savings. However, Cromie and Zott
(2013, p. 183), compares internally and externally carried out functions. In contrast to
interior functions, outsourcing not only costs less but also integrates specialization.
Outsourcing posses the capability to bring down economical costs by 20% - 50%
(Szymczak, 2013, p. 59).
3. Concentration on Core Business: Among the various operations in a company, there
also exist functions that are unimportant and cause loss in the long-run (Lacity and
Willcocks, 2015, pp. 237-245). Outsourcing practices significantly helps the
management of a firm to differentiate core activities from the non-core ones and
thereby draw focus to it. For example, organizations often outsource accounting
practices and concentrate on manufacturing goods, thereby advancing towards a
developed strategy that along with building competitive advantage factors help to
serve customers in a better way. As per Molinelli and Paccagnella (2013, pp. 87-98),
it is momentous that outsourcing practice facilitates companies to concentrate on core
processes, access specialized skills and enjoy economies of scale.
4. Enhanced Innovation: The shift of focus from non-core practices to core processes
greatly helps the management of a business to develop competitive advantage factors.
Similarly based on the idea of Smogavec and Peljhan (2016, pp. 127-131), Oshri,
Kotlarsky and Willcocks (2015, p. 89) in their book states that the outsourcing acts as
a helping hand to reallocate resources from domestic activities to innovation. It is
noted that the feature enhances creativity within the organizational structure that
further leads to a rise of production and performance levels.

5BUSINESS RESEARCH
5. Time Pressure Management: Every enterprise is confronted with an issue of
managing time-sensitive functions (Szymczak, 2013, p. 59). It is noted that
outsourcing helps the management to perform effectively and deliver results timely.
On the other hand, Bowman (2016, pp. 215-231) takes into consideration the case of
peak seasons when a firm has to deal with exclusive orders to enjoy an increased level
of profit. It is the outsourcing functions breaks down pressure and ensures fulfilment
of targets.
Despite of a detailed analysis in the journal of Smogavec and Peljhan (2016, pp. 127-131), it
fails to takes into consideration the case of the several other advantages of outsourcing
functions in case of a small or newly start-up business. Based on the book of Hill (2015, p.
310), a few more benefits of the aspect can be identified as follows:
1. Risk Sharing: A standout amongst the most essential factors in any venture is risk
assessment and investigation. It is by outsourcing procedures on to specialists that a
firm profits from their increased knowledge and mitigate potential dangers.
2. Geographical Dispersion: The rise of digital technology has enabled companies to
outsource activities over these mediums. In addition to lower costs and timely
delivery of the services, firms are able to operate on holidays as well (Mol and
Brewster, 2014, pp. 20-34).
3. Simplifies Project Management: It is noted that the use of online channels and
social mediums for professional work is common in the modern world. The
outsourcing of processes using specialized websites enables a simplified management
of the activity.
4. Simplifies Work Relationship: Outsourcing of business functions tends to build up
contractual bonds between an organization and service providers. Bowman (2016, pp.
215-231) contradicted that the presence of informal relationship between employees

6BUSINESS RESEARCH
leads a rise in production levels. However, it is only with the downfall of unofficial
bonding and rise of professional that acts a helping hand to any firm.
4.2 Disadvantages of Outsourcing Business Functions
In the words of Garrigos-Simon, Gil-Pechuán and Estelles-Miguel (2015, p. 274), like any
other feature in an organization, outsourcing also has its own set of disadvantages that limits
its success in the corporate world. On the contrary, Vitasek, Ledyard and Manrodt (2013, p.
518) states that it is only with the use of calculated metrics in the process of outsourcing
functions that will not only help to evade complications, but also shall ensure a smooth flow
of operations. Mol and Brewster (2014, pp. 20-34) in their work identify five major drawback
of the concept: hollowing out, transaction costs, opportunistic behaviour, reduced learning
and creativity. It is noted that unlike Smogavec and Peljhan (2016, pp. 127-131), factors like
innovation, expanded scopes, and operation costs are recognized as major cons of
outsourcing by Hill (2015, p. 310).
On the other hand, the various disadvantages identified by Mosca and Bordelon (2017, pp.
81-132) after a detailed investigation into the field are as follows:
1. Failure of Internal Expertise: An increased outsourcing of functions tends to escape
training and development of employees in a firm. Further, an interactive environment
would also lead to downfall of motivation among the workers which leads to
degraded performance levels. However, Peck (2017, p. 173) suggests that outsourcing
of human resource functions such as recruitment, training, performance management,
compensation, mentoring, coaching, corporate reallocation and employee
communication would help to build up internal expertise.
2. Degraded Management Control: Outsourcing activities directly leads to the loss of
managerial control on the processes and its outcomes. Moreover, an excess of
dependability on external service providers might also result in confinement to

7BUSINESS RESEARCH
definite operational arrangements. Similarly Jefferson (2013, p. 398) also believes
that, outsourcing functions contributes towards breaking down administrative control
and limits development of a competitive edge. With a diminished rule on delivery of
activities, a company`s liability exposure seem to increase.
3. Succession Planning Risk: Based on the work of Vitasek, Ledyard and Manrodt
(2013, p. 518) it can be said that outsourcing may result in varied and low quality
results. In addition to affecting future plans of a firm, external functions might not be
a long term source of competitive advantage. Further, service providers who have no
knowledge of a company`s objectives will act as a liability. It is the adequate balance
between the motives of a firm and targets of outsourcing that lead to effective outputs.
4. Proprietary Data Risk: It is noted that rise of confidentiality concerns are one of the
most important factor that affects outsourcing. Moreover, outsourcing also act as a
threat to intellectual capital thereby affecting the management`s decision to approach
external service providers.
However, in conflict to Mosca and Bordelon (2017, pp. 81-132), the published material of
Peck (2017, p. 173) states that the advantages and disadvantages of outsourcing tends to
balance each other. On the contrary, Jefferson (2013, p. 398) recognizes several other
limitations of outsourcing business functions, which are as follows:
1. Existence of Hidden Costs: As compared to internally performed activities,
outsourcing is likely to be cheaper. Conversely, there exists various hidden cost in the
process that severely affects its smooth operation. The complicated contracts between
organizations and big service providers often include various unexpected costs that
are harmful for any SME (Stanfield and Thompson, 2014, pp. 331-349)
2. Share Financial Trouble: Even though inviting expert agencies for performing
internal activities tend to cut down risks, it often leads to a dangerous situation by

8BUSINESS RESEARCH
bonding the two financially. It is noted that service providers do not intend to take
part in any loss of a firm.
3. Public Backlash: As opined by Verma, Singh and Gupta (2013, p. 12) people with a
moral belief regarding externalisation of activities do not prefer firms that involve in
such affairs. However, there is no such mention in the work of Mosca and Bordelon
(2017, pp. 81-132).
4. Loss of Information: Among the several problems, the transfer of lengthy data
governing complex processes is a hard task. It is prominent that the exchange of
information to overseas freelancers or external agencies results in a loss of data,
thereby creating confusion.
5.0 Conclusion
Based on the above project it can be inferred that the notion of outsourcing business function
has been a topic of debate for business professionals in the bygone years. However, with the
modernization of the business world, the aspect has gained importance. It is noted that like
every other aspect in a company, outsourcing also tends to have its individual benefits and
drawbacks. Additionally, there has also been a growth of service provider agencies that
particularly focus on operating in this particular field. As compared to internally carried out
activities, outsourcing processes provides a firm with several exclusive advantages. On the
other hand, the presence of complications and challenges not only affect emprises, but also
greatly impact the aspect. However, it can be understood that it is only with building up of
effective plans, coordinating objectives, and expanding control that would minimize
negatives of outsourcing. Furthermore, as compared to the drawbacks of the concept, the
numerous advantages tend to be of greater significance that plays a major role in leading and
guiding business organizations towards success.

9BUSINESS RESEARCH
6.0 References
Bowman, A. (2016). What a waste: Outsourcing and how it goes wrong. Manchester:
Manchester University Press, pp. 215-231.
Cromie, J. and Zott, L. M. (2013). Outsourcing. Detroit: Greenhaven Press, p. 183.
Garrigos-Simon, F. J., Gil-Pechuán, I., and Estelles-Miguel, S. (2015). Advances in
crowdsourcing. Cham: Springer, p. 274.
Hill, C. W. L. (2015). International business: Competing in the global marketplace. New
York, NY: McGraw Hill Education, p. 310.
Jefferson, A. (2013). Business process outsourcing: 23 most asked questions : what you need
to know. Brisbane, Australia: Emereo, p. 398.
Lacity, M. C., and Willcocks, L. (2015). Nine keys to world-class business process
outsourcing. London: Bloomsbury, pp. 237-245.
Lacity, M. C., and Willcocks, L. P. (2013). Outsourcing business processes for innovation.
Cambridge, MA : MIT Sloan Management Review, pp. 28-46.
Mol, M.J. and Brewster, C., (2014). The outsourcing strategy of local and multinational
firms: a supply base perspective. Global Strategy Journal, 4(1), pp. 20-34.
Molinelli, F. E., and Paccagnella, L. S. (2013). Economics of regulation and outsourcing.
New York: Nova Science Publishers, pp. 87-98.
Mosca, J.B. and Bordelon, G.R., (2017). Human Resource Managers Detect Management and
Legal Disadvantages to Outsourcing. Business, Management and Economics Research, 3(2),
pp. 81-132.
Oshri, I., Kotlarsky, J., and Willcocks, L. P. (2015). The Handbook of Global Outsourcing
and Offshoring: The Definitive Guide to Strategy and Operations. New York: Springer, p. 89.
Parlour, D. (2016). Successful outsourcing and multi-sourcing. London: Routledge, p. 89.

10BUSINESS RESEARCH
Peck, J. (2017). Offshore: Exploring the worlds of global outsourcing. Oxford: Oxford
University Press, p. 173.
Smogavec, T., and Peljhan, D. (2016). Satisfaction with outsourcing: Empirical analysis on
the case of SMEs. Corporate Governance, pp. 127-131.
Stanfield, K., and Thompson, S. (2014). Outsourcing. Biall Handbook of Legal Information
Management. Farnham : Ashgate, pp. 331-349.
Szymczak, M. (2013). Managing towards supply chain maturity: Business process
outsourcing and offshoring. Houndmills, Basingstoke, Hampshire; New York, NY : Palgrave
Macmillan, p. 59.
Verma, S. B., Singh, S. K., and Gupta, S. K. (2013). Business process outsourcing. New
Delhi: Shree Publishers & Distributors, p. 12.
Vitasek, K., Ledyard, M., and Manrodt, K. B. (2013). Vested outsourcing: Five rules that will
transform outsourcing. New York: Palgrave Macmillan, p. 518.