Literature Review: Outsourcing Business Function in Organizations

This literature review explores the multifaceted aspects of outsourcing business functions. It begins with an introduction defining outsourcing and its prevalence in modern business to enhance efficiency. The paper delves into the objectives of outsourcing, highlighting time and cost savings, and the adoption of latest technologies as primary drivers. It then examines the scope of outsourcing, differentiating between transitional, selective, and total outsourcing models. The review thoroughly analyzes the advantages, including improved company focus, reduced operating costs, enhanced work quality, strategic management, access to world-class technology, and competitive advantage. Conversely, it addresses the disadvantages, such as communication barriers and the potential for reduced work quality, and the risks of cost escalation. The paper synthesizes findings from various authors and researchers to provide a comprehensive understanding of outsourcing's benefits and drawbacks, offering valuable insights for businesses considering this strategy.

BUSINESS RESEARCH
LITERATURE REVIEW: ADVANTAGES AND
DISADVANTAGES OF OUTSOURCING BUSINESS FUNCTION
INSTITUTIONAL AFFILIATION(S)
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LITERATURE REVIEW: OUTSOURCING BUSINESS FUNCTION
Table of Contents
LITERATURE REVIEW......................................................................................................................3
INTRODUCTION.............................................................................................................................3
OBJECTIVES OF OUTSOURCING................................................................................................4
SCOPE OF OUTSOURCING...........................................................................................................5
ADVANTAGES OF OUTSOURCING.............................................................................................6
DISADVANTAGES OF OUTSOURCING......................................................................................9
CONCLUSION...................................................................................................................................12
REFERENCES....................................................................................................................................14
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LITERATURE REVIEW: OUTSOURCING BUSINESS FUNCTION
LITERATURE REVIEW
INTRODUCTION
In today’s business world, in order to sustain, business owners adopt ways and methods that
can make their work flow fast and efficient (Kremic, 2006). Outsourcing is the only way that
can prove beneficial as it assists in delegating work to outside people. The term outsourcing
can also be defined as a process of delegating work to other people who are not joined with
the firm but are supposed to carry certain tasks under agreed criteria (Bucki, 2017). Generally
companies outsource tasks that require special treatment or the ones which could prove
expensive for them. There are many ways by which outsourcing function can be carried like
performing tasks in house, manufacturing in other units; IT enabled service, providing online
jobs, or getting expert advices (Iqbal, 2013). Though there are many who do not believe in
outsourcing as it has got many drawbacks also, but still on some or the other way has to
delegate work to others like transportation, currier, engaging lawyers, etc. For a single or
limited group of people, to perform all the tasks are not possible and can lack quality
(Mukherjee, 2014). In this research paper advantages and disadvantages of outsourcing
business function will be reviewed and concluded after observing potential reasons for
outsourcing in small and big organisations. Study made by many authors and researchers
have been utilised in this paper to make detailed analysis of the topic to provide assistance to
those who are planning to implement outsourcing function in their business.
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LITERATURE REVIEW: OUTSOURCING BUSINESS FUNCTION
OBJECTIVES OF OUTSOURCING:
The primary feature of outsourcing i.e. performing work in shorter time along with cost
reductive manner has made outsourcing function an integral part in many organisations.
Companies outsources work to others in order to get involved with latest technologies and
trends which could otherwise would have been difficult to perform under limited area and
people (Pine, 2017). Thus external companies and agents with latest technologies are
outsourced by major companies to get updated outcomes of latest trends. Time and cost
saving are also significant objectives that makes organisations outsource their work along
with getting efficiency (Iqbal, 2013).
Figure: Objectives and risks of outsourcing function in business
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LITERATURE REVIEW: OUTSOURCING BUSINESS FUNCTION
Source: (Simeoni, 2011)
In the above figure it is clearly shown that objective behind outsourcing can be fulfilled in
different manner but at the same time can become risk oriented without proper strategy. The
reasons behind outsourcing are so apparent that sometimes many companies’ falls into its
prey and has to bear unexpected losses (Mukherjee, 2014). To identify the pitfalls behind
outsourcing it should be the primary target of businesses to recognize the risks before handed
or else could lead them with adverse affects. In business where the work area is small and has
limited capital, outsourcing becomes a great help as it enables sharing risks with outsourced
agencies and thus releases risk of capital. Depending on the temperament of business,
objectives behind outsourcing can vary but the ultimate goal lies in improving
product/services (Syluancia, 2009).
SCOPE OF OUTSOURCING:
Figure: Scope of outsourcing in business
Source: (Kishore, 2010)
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LITERATURE REVIEW: OUTSOURCING BUSINESS FUNCTION
The scope or purpose of outsourcing is been identified to a great extent by business owners
these days and have been accepted by them to fulfil many purposes (Riley, 2010). The basic
scope provided by outsourcing, as shown in above figure can be further explained after
evaluating it by placing different examples (Robe, 2017). Transitional or intermediary
outsourcing is related to those tasks where company outsources particular task to outsiders
for a certain period of time or till the task is completed. For example, delivery of goods,
transporting raw materials to vendors, cleaning and sanitising, hiring mechanics for electrical
fittings, labours, etc (Ahmed O. Al-Mutairi, 2015). These types of outsourcing provide a
limited scope for risk as external agencies are engaged for shorter span of time. Selective
outscoring is generally adopted by manufacturing companies as it deals in delegation of
limited and particular work to outside companies on regular basis. Organisations where
manufacturing small parts are not done in house as outsourcings confirm better way, selects
other external companies to undertake that part in return of agreed costs. This function can be
performed by outsourcing it to one or many companies at a time and involve risks higher than
transitional outsourcing (Syluancia, 2009). Other examples are advertising function,
computer related service, creative designer hiring, freelancers, etc (Pine, 2017). Lastly, there
are organisations who believe in total outsourcing their business functions and assembling the
entire work under their supervision. This kind of outsourcing is generally done in computer
manufacturing companies where different parts of computers are assembled and is sold under
name of outsourcing company. Many clothes manufacturing companies also outsources its
works to different designers and tailors which are later on sold under company’s name (Robe,
2017).
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LITERATURE REVIEW: OUTSOURCING BUSINESS FUNCTION
ADVANTAGES OF OUTSOURCING:
In literature, outsourcing has gained much consequence and has become an important subject
to study for researchers and writers (Kremic, 2006). The advantages of outsourcing can be
identified largely which has made it an inevitable part of business. The below diagram gives
an outline to the study which is further defined in a detailed and specific way with the help of
studies made by different authors.
Figure: Advantages/Benefits of outsourcing
Source: (Jones, 2014)
Improve Company Focus has been an advantage which has made large companies adopts
outsourcing. While work is delegated to outsiders, the management or executing part of the
company gets released with energy which can be utilized in focussing other important areas
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while quality of the work is also not depreciated (Pine, 2017). Menial jobs can be outsourced
as it comprises of minimum to no risk and leave the experts of the company to perform other
growth oriented work. For example, in hotel business, if the regular purchasing or completed
food delivery task is outsourced, it may release managers to perform other official works. In
supply and logistics firm, transporting vehicles are outsourced which saves company’s time
and energy required for its regular maintenance of vehicle parts and hiring drivers (Robe,
2017). Reduced operating costs are another advantage recognised while outsourcing. This can
also be said as main reason why small companies outsource its major work outside. While
outsourcing, the need of hiring full time staff is eliminated and also to make arrangement to
perform the task in house is not required (Ahmed O. Al-Mutairi, 2015). In manufacturing
firms setting of machines is required and sometimes becomes difficult for the company to
purchase and requirement of special trained staff for a particular task is also necessary.
Outsourcing can be immensely used her for reducing cost of performing those tasks (Yeboah,
2013).
Improvement in work quality is ensured in outsourcing as contracts are made by outsourcing
firms and the outsourced agencies are obligated to perform the work under their conditions.
While the experts are engaged, the efficiency and work quality is improved in cost effective
way. For example, large organisations outsource its advertising part to social media and other
advertising agencies that specialises in their field and with their experts and current
knowledge about advertising, can provide better service to the organisations. While engaging
experts to the company, business competence is gained. In organisation where large number
of paper works is required to be dealt with along with handling legal cases, outsourcing can
be done to experts who can handle the work more efficiently (Pellicelli, 2012). Like changes
in government regulations and legal requirements is fast observed by experts of those fields
and changes made according can be easily done without hampering business code. Strategic
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LITERATURE REVIEW: OUTSOURCING BUSINESS FUNCTION
management is required in today’s business scenario which can only be obtained by
involving expert advices (Yeboah, 2013). Since their charges for full time service is higher,
outsourcing becomes the way to get access to their expertise in reduced costs. For example,
in construction firms where large number of contracts is made with suppliers and buyers,
legal advices are required so that the companies are aware of government regulations
regarding taxes and property leases. They outsource legal advisory works to agencies
specialist in legal advising and corporate lawyers for getting acceptable advice (Gardener,
2015).
Establishing world class technology is also ensured as outsourcing is generally made by the
companies to them who are tailored with latest tools and procedures. Even if the company is
older or has been established long way back, outsourcing its work to other companies with
latest technologies can provide a scope for changeover to new trend. Smartphone companies
utilising outsourcing techniques is visible in latest news where mobile producing companies
outsources software development units to other advanced companies (Meyer, 2011). In
airline industries also outsourcing have made a significant role where latest aircrafts and
planes are manufactured by other companies with special and latest technologies (World
Airline News, 2017). Lastly, to beat competition and gain sustainability, outsourcing plays an
important role. This advantage is observed after realising all the above mentioned features
and advantages of outsourcing by organisations as after realising it, the company must have
become enriched with all necessary features like cost efficiency, work effectiveness, expert
engagement and time saving (Syluancia, 2009). To gain competitive advantage, the
organisations follow strategic managerial procedures which can be in the form of self
performance or outsourcing to other special agencies (Pellicelli, 2012). Thus the company is
able to take on newer risks and challenges after outsourcing which might be helpful to
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LITERATURE REVIEW: OUTSOURCING BUSINESS FUNCTION
overcome others in the same market area while reducing self energy for other expansion
related work (Bucki, 2017).
DISADVANTAGES OF OUTSOURCING:
Outsourcing has many disadvantages also which has been discovered by researchers and had
been estimated for business owners to make them aware of its cons while implementing it in
their business (Simeoni, 2011). The following figure outlines major disadvantages of
outsourcing and further explanation about it have been supported by various examples.
Figure: Disadvantages recognised after outsourcing business functions
Source (A, 2017)
Communication barriers are the most significant disadvantage noticed in outsourcing function
as whenever outsourcing is done, it involves larger community of people belonging to
different culture (Simeoni, 2011). There are times when the companies are unable to meet
with the outsourcing agents personally and hence are unsure about their work quality. Where
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the outsourcing is done to other countries, this problem proves to be immense as language
along with culture is highly diversified. This difference can lead to higher tendency of
miscommunication and result in affecting the work performance (Telus International, 2017).
For example, in construction industry the designing function is normally outsourced to other
country experts to bring diversified and newer designs in their construction portfolio. If the
designers are unaware of the climate or culture of the outsourcing countries and does not
understand the actual requirement, the design sent by them can be of no use or when applied
can prove unsuccessful (Mahesh, 2009). The tendency of work quality reduction is higher in
outsourcing as the external agents are more inclined to make profits rather than spending
utmost time in product development or maintaining good quality throughout. As the quality
reduces, sales also get down and hence prove to be fallback for the company. Management
requires giving consideration to proper budgeting while utilizing outsourcing function as
sometimes if miscalculated; outsourcing can prove to be cost escalating (Kremic, 2006). For
example, in hospitals, cleaning function is normally outsourced to outer agencies. If the work
area is limited and requires lesser time in cleaning and sanitising, the outsourcing can prove
beneficial. On the other hand if the area is bigger and requires cleaning at regular intervals of
the day with strict monitoring, outsourcing can prove expensive and hiring permanent
staffing can then establish cost reductive way (Pine, 2017).
The outsourcing agencies normally deal with many companies simultaneously to fulfil their
primary target of profit earning. While they engage in many works at a time, propensity of
delay at work is probable. Although agreements to maintain time punctuality is made in the
agreements, still companies has to face trouble while not getting works done on time. This
problem is normally faced while outsourcing transportation function and many companies
face problems helplessly as the agents can easily make excuses of climatic and governmental
issues (Kishore, 2010). Other issue faced by outsourcing companies are that they get delayed
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support by the outsourced companies at the time when any problem is identified in products
or services. The external agencies who performs work for many companies might not get
enough time to concentrate on each outsourcing company and while queries are delayed, the
overall costs of the project is hampered along with companies getting annoyed. Lack of
security of data is another important disadvantage recognised while outsourcing. While
internal management work is outsourced, data related to internal management and company
secrets are sometimes required to be discussed with outsiders. Thus chances of getting them
leaked become higher and loss of significant data might prove dangerous for the company
(Telus International, 2017). For example, while outsourcing accounts maintaining function of
business, the outsourced accounting agents or accountant may ask for credentials that are
significant and at the same time necessary to present. If the outsourcing agent is fraud, they
may make negative use of it and can even share or sell information with company
competitors’ (Simeoni, 2011). Many companies also face problems while outsourcing as they
tend to lose their control over the outsourced function. The external agencies or experts might
not allow the company to invade into their work area and thus the owners remain unfamiliar
with the work processes. Although they are entailed to spend expenses for work but to get
control over it becomes difficult. The agencies sometimes take advantage of the situation and
perform the work in inferior and degraded way (Mukherjee, 2014).
CONCLUSION:
It is important to understand pros and cons of outsourcing as it is continuously developing in
business and has become an integral part of commerce (Kremic, 2006). Although researchers
have provided with many reasons to implement outsourcing into business, at some areas gaps
can be identified in the study which limits to cost and talent related function of outsourcing.
To make the research more appropriate, those gaps should be identified by giving an insight
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to processes and methods of successful outsourcing. Objectives behind outsourcing are
several but the major ones defined are introduction of talent and skill in the company along
with reduction of cost (Riley, 2010). To save time and energy is also observed while
outsourcing but at the same time can prove disadvantageous if not monitored with concern.
Business owners who do not look into contracts before signing it with outsourced companies
are normally the ones who suffers severely while other who take precautions gains utmost
advantage of outsourcing (Pellicelli, 2012). The identification of advantages and
disadvantages have been keenly observed in this report which can be summarised as
advantages being potential enough to attract the business owners while disadvantages are the
result which is faced by them due to negligence in strategic management (Kremic, 2006).
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