Business Research Methodology: Outsourcing Functions Literature Review

This report presents a comprehensive literature review on the advantages and disadvantages of outsourcing business functions. The review begins with an introduction to outsourcing, defining it as the allocation of business processes to external service providers. It explores the benefits, such as swiftness, expertise, focus on core activities, risk-sharing, and reduced costs. It also discusses the disadvantages, including managerial control, security concerns, hidden costs, and quality issues. The report then delves into relevant outsourcing theories, including the resource-based view, core competency approach, and transaction cost theory. The literature review examines the quality and currency of the selected sources, ensuring the validity and reliability of the information. The report identifies a research gap concerning the impact of outsourcing on businesses and concludes by emphasizing the importance of understanding the complexities of outsourcing for strategic decision-making. This report is designed to give students a good understanding of business outsourcing.

Running head: BUSINESS RESEARCH METHODOLOGY
Business Research Methodology
Name of the Student
Name of the University
Author Note

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Table of Content
Literature Review............................................................................................................................3
1.1 Introduction................................................................................................................................3
1.2 Scope of the Literature...............................................................................................................7
1.3 Literature Review Objectives....................................................................................................8
1.4 Different theme development....................................................................................................8
1.5 Quality and currency of the literature........................................................................................8
1.6 Literature review source validity and reliability........................................................................9
1.7 Research Gap and Contribution...............................................................................................10
1.8 Conclusion...............................................................................................................................10
References and Bibliography.........................................................................................................11

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Topic- Advantages and Disadvantages of Outsourcing Business Functions
Literature Review
1.1 Introduction
Outsourcing is an allocation of particular business process to a specialist external service
provider. Many a times, the organizations are failed to handle all aspects of a business process
internally. Moreover, some techniques are temporary and the organization does not intend to hire
in-house professional to implement the tasks. When the task is outsourced to the service
provider, the service provider will take the responsibility of performing the tasks as well as
maintaining organization’s assets. The existing studies indicate that outsourcing is a known
practice among both private and public organizations and it is treated as the major aspect of
business strategy. As put forward by Tayauova (2012), the process of the outsourcing can be
looked upon as the strategic move among the business. The authors claim that this technique
could attempt and decrease the total cost of maintaining or maximizing the productivity.
The studies indicate that outsourcing could allow the organization to focus on the
fundamental activities of the business. For last two decades, the researchers have supported this
phenomenon as one of the significant ways for minimizing the cost; nonetheless, the total impact
of this practice remains explained conundrum. In order to conduct the literature review, some
specific journals on outsourcing have been selected. However, this selection has been done based
on the theme found in the literature.
As put forward by Liu and Wang (2014), the outsourcing usually known as offshoring
carries some advantages and disadvantages but in most of the cases, the benefit overshadow the

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drawbacks of outsourcing. The existing studies have discussed about the following advantages
and disadvantages of outsourcing.
Swiftness and Expertise-In many cases, the business activities are outsourced to vendors
who are specialized in their field. The outsourced vendors also have some particular equipments
as well as technical expertise, which are better than those at the outsourcing organization are.
Hence, the business activities are effectively completed with a better quality in short time.
Focus on the core instead of the supporting ones- Outsourcing the supporting processes
provides the organization with more time to strengthen their fundamental business process. This
means the organization could outsource its supporting services, and put special attention to
fundamental aspects of the business.
Risk-Sharing- As put forward by Dolgui and Proth (2013) one of the significant factors
determining the consequence of an organization is risk-analysis. This means outsourcing certain
aspects of the business process helps the organization to shift some particular responsibilities to
outsourced vendors. Hence, the outsourced vendor is a specialist, they could develop the plan of
risk mitigating the factors more effectively.
Minimized operational and recruitment costs- It is observed that outsourcing elude the
need to hire individuals in-house, here recruitment and operational costs can be reduced to a
large extent (Jensen 2012). This is one of the significant advantages of offshore outsource.
Disadvantages of outsourcing-
The studies claim that the major disadvantages of outsourcing are the managerial control
over the outsourced operations, threat to security, confidentiality, hidden cost, quality issue as

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well as reallocation of the existing team. In this context, Sass and Fifekova (2011) commented
that the major disadvantage is related to the loss of control over the outsourced operation stems
from the reason that manage the external source needed for particular skills. On the other side,
Nassimbeni, Sartor and Dus (2012) commented that almost every outsourcing contract has the
terms of security as well as the confidentiality; however, the implementation and the audit
always remain difficult. Particularly, in financial services, the requirements keep information
known to investment bankers away from the traders, brokers and other individuals who try to use
such insider information. The studies have discussed that outsourcing organization will be
motivated by profits. As the contracts will fix the price, a significant way for business
organization to increase profit is to decrease the cost. Hence, Liu and Wang (2014) mentioned
that even though the outsourcing organizations gain the benefits from such business practices,
the organizations always cannot the expected result; this is because of the communication gap is
the major factor.
Likewise, Al-Mutairi and Al-Hammad (2015) commented that one significant reason to
outsource can be treated as the expectation of receiving better services from the outsourcer than
from internal organizational staff. The studies claim that outsource has to be selected in a
specific manner to ensure that there is no negative influence on quality of products and services
manufactured, else the organization could lose its position on the market. Apart from all these
drawbacks, studies have emphasized on the fact the organizations could sign a contract with the
outsourcing organization that could cover the details of the service that will be providing. Hence,
anything not covered in the contract will be the fundamental for the organization to pay
additional charges. For instance, it is observed that an analyst could purposely exclude costs to

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favor one decision such as selecting one provider versus another, selecting in sourcing over
outsourcing. While digging into the fact that the outsourcing is often related to firing employees’
mind and it is a significant issue for the organization’s top management team to decide about the
relocation of existing employees.
Theories related to outsourcing
As put forward by Narayanan et al. (2011), outsourcing consists of different activities as
many frameworks that are implanted in different theoretical approaches could describe well as
each phenomenon. Many studies on outsourcing have usually been affected by three different
approaches namely resource-based view, core competency approach as well as transaction cost
theory. It is studied that resource-based view in outsourcing develops from a propositions that an
organization that lacks significant organized resource and capabilities could seek for a provider
from the external environment to overcome the weakness. As put forward by Çiçek, and Ozer
(2011), the most significant use of resource-based theory in outsourcing technique remains as the
perception stage for defining the decision making framework.
Hence, Kang et al. (2012) mentioned that organizations should plug gaps in resource and
capabilities in most cost-effective way to maintain a distinctive product as well as its competitive
edge. The existing studies have claimed that a core competence can be considered as a cluster of
attributes that an organization possesses that in turn enables it to gain competitive edge.
However, if the organization is to focus on its core competence as the fundamental basis of its
sustainable competitive advantages, the activities that do not constitute a core competence for the
organization can be given to outside companies who can provide these at much lower cost.

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On the other side, the transaction cost theory has been established to facilitate an analysis
of the comparative cost of planning and monitoring the task completion with the help of
alternative governance structure (Plugge, Bouwman and Molina-Castillo 2013). The unit of
analysis in transaction cost theory is considered as transaction, which occurs when a service is
transferred across an isolated interface. However, the decision maker should weigh up the
production as well as the transmission costs included with the execution of the transaction within
their organizations.
1.2 Scope of the Literature
In the literature review, the advantages and disadvantages of outsourcing functions have
been covered. In addition, to understand other facts related to outsourcing business process,
outsourcing business theories have been covered in the literature review. The areas that have
been covered in the literature are comprehensive, as each piece of information has been provided
with the evidences. It is comprehensive because the evaluation of the papers has been done
keeping the major focus of the study in mind, which is the evaluation of benefits and drawbacks
of outsourcing. In order to conduct the review of literature, 10 journals related to advantages and
disadvantages of outsourcing. However, the selection of journals are limited to more recent
materials; this means in order to increase the relevancy of the discussion, only recent studies
have been considered. In addition, the review of literature does not focus on the methodological
approach or any quantitative approach. Nonetheless, the search for literature related to discipline
has been broadened.

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1.3 Literature Review Objectives
The objectives of the literature revolved around examination of benefits and drawbacks of
outsourcing business functions. Thus, considering the purpose of the study, the following
objectives have been formed.
 To establish an understanding about outsourcing business process
 To critically evaluate advantages and disadvantages of business outsourcing
 To analyze the potential impact of outsourcing on business
1.4 Different theme development
Many studies have been performed on the advantages and disadvantages of outsourcing
business functions and each of the study consists of different themes; however, the major focus
of the studies remains same. For example, the study conducted by Kang et al. (2012), includes
the theories of outsourcing and how they can be applied to business context. On the other side,
the study conducted by Çiçek, and Ozer (2011), focuses on the advantages and disadvantages of
business outsourcing. Likewise, the research conducted by Al-Mutairi and Al-Hammad (2015),
revolves around the issues of business outsourcing. However, all studies selected for the
literature included the themes that are relevant to or related to the recent contexts. If outsourcing
business can be implemented effectively to the real-context, the business will be more profitable.
This is compared to the businesses that use internal strengths to conduct the supporting activities
1.5 Quality and currency of the literature
The quality and currency of literature sources utilized in the perception of review is ascertained
to be high of high quality and recent as possible.

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Quality of the paper selected for the literature
The sources selected for the literature review carries the highest standard and the authors
with years of experience write the papers not only in business but also in business writing. Most
of the articles referred to the review are well-known international business journals. The authors
have conducted several journals in the same context hence to known to produce desired quality.
For example, Çiçek and Ozer) stayed the supervisor for global MBA students at Manchester
Business School and Al-Mutairi and Al-Hammad stayed as the lecturer in an African University
also. Such exposure enables the production of very high quality work.
Currency of the selected journals
The secondary information for conducting the literature review is recent, with articles and
publication is not later than 2011. Therefore, this criteria ensures the kind of information used in
the study is up to date and relevant to the research context. However, the paper by Narayanan et
al. (2011) is the oldest of all that have been used in the analysis with the context being discussed
from it is not being dynamic in the recent business trends.
1.6 Literature review source validity and reliability
The sources used for the implementation of the literature review are certainly reliable as
exemplified by the sort of quality authors whose have been cited. The discussion on the recent
themes makes the papers valid and they can be relied upon because of the fact that some papers
used in the present study have also been cited in other literature review in the field of
outsourcing business activities.

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1.7 Research Gap and Contribution
Based on the literature developed in the study, it can be mentioned that existing papers
lacks the discussion on the interaction between outsourcing and its impact on the business in the
recent time. The existing literature review have emphasized on the benefits, drawbacks and
theories of outsourcing but the studies did not focus on how those benefits and drawbacks are
affecting the organizations. Most of the articles cited in the literature review lead towards the
process about how the advantages can be gained outsourcing. The contribution found in the
literature was the article conducted by Al-Mutairi and Al-Hammad (2015) on the advantages and
disadvantages of outsourcing.
1.8 Conclusion
In conclusion, it can be mentioned that the advantages and disadvantages outsourcing in
business have the explored the depth in the literature review. The advantages of outsourcing
revolve around the time saved for focusing the core activities of the business. This means the
outsourcing organization can develop their fundamental business by outsourcing the supporting
activities; this helps them to save additional cost and time.

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References and Bibliography
Al-Mutairi, A.O. and Al-Hammad, A., 2015. Advantages and Disadvantages of Maintenance
Outsourcing in Manufacturing Companies: With Special References to Jubail Industrial City–
KSA. European Journal of Business and Management, 7(20).
Çiçek, I. and Ozer, B., 2011. The effect of outsourcing human resource on organizational
performance: the role of organizational culture. International journal of business and
management studies, 3(2), pp.131-144.
Dolgui, A. and Proth, J.M., 2013. Outsourcing: definitions and analysis. International Journal of
Production Research, 51(23-24), pp.6769-6777.
Jensen, P.D.Ø., 2012. A passage to India: A dual case study of activities, processes and resources
in offshore outsourcing of advanced services. Journal of World Business, 47(2), pp.311-326.
Kang, M., Wu, X., Hong, P. and Park, Y., 2012. Aligning organizational control practices with
competitive outsourcing performance. Journal of Business Research, 65(8), pp.1195-1201.
Liu, S. and Wang, L., 2014. Understanding the impact of risks on performance in internal and
outsourced information technology projects: The role of strategic importance. International
Journal of Project Management, 32(8), pp.1494-1510.
Liu, S. and Wang, L., 2014. Understanding the impact of risks on performance in internal and
outsourced information technology projects: The role of strategic importance. International
Journal of Project Management, 32(8), pp.1494-1510.

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Narayanan, S., Jayaraman, V., Luo, Y. and Swaminathan, J.M., 2011. The antecedents of process
integration in business process outsourcing and its effect on firm performance. Journal of
Operations Management, 29(1), pp.3-16.
Nassimbeni, G., Sartor, M. and Dus, D., 2012. Security risks in service offshoring and
outsourcing. Industrial Management & Data Systems, 112(3), pp.405-440.
Plugge, A., Bouwman, H. and Molina-Castillo, F.J., 2013. Outsourcing capabilities,
organizational structure and performance quality monitoring: Toward a fit model. Information &
Management, 50(6), pp.275-284.
Sass, M. and Fifekova, M., 2011. Offshoring and outsourcing business services to Central and
Eastern Europe: Some empirical and conceptual considerations. European Planning
Studies, 19(9), pp.1593-1609.
Tayauova, G., 2012. Advantages and disadvantages of outsourcing: analysis of outsourcing
practices of Kazakhstan banks. Procedia-Social and Behavioral Sciences, 41, pp.188-195.