The main issues on outsourcing and the application of new learning
Outsourcing is the transfer of some of the organization’s recurring activities and powers to make decisions to the external parties as agreed in the contract. These activities are usually important for the continued running of the business and are in most cases recurring in nature. Therefore, the providers of the service are expected to offer these services as long as they hold a contract. In outsourcing, the external provider is given the power to make decisions pertaining to the activities assigned according to their agreement. They have the right to make changes on the way the services are offered in their services. The resources that are necessary for the running of the activities are given to the external providers. These include machines, man power and other facilities necessary for the execution of the outsourced activities.
According to Greaver (1999), outsourcing is viewed in a very different way in modern business world. In the past, organizations opted for outsourcing when they could not execute the outsourced activities. This could be caused by the lack of the necessary equipments or the capabilities necessary for the performance of the activities tendered to outside providers. In the modern organizations, outsourcing is done by the organizations which have achieved handsomely in the business world. Many organizations are now opting for outsourcing in order to withdraw their attention away from those activities which can make them fail to provide their customers with maximum satisfaction. Any activity leading the organization to lose focus is given to the outside providers.
In modern organizations, many duties are being outsourced. For instance, duties like accounting and pension management are mostly outsourced. Activities which tend to cost organizations a lot of investment and those that require a high level of expertise are being outsourced (Greaver 1999). This process has increased the efficiency in many organizations considerably.
Many companies which have embraced the process of outsourcing have made a remarkable improvement. This has led companies to extension of the outsourced services. Recently, many companies have started outsourcing human resources (Hunter I. & Saunders J. 2006).
In the modern business world, the act of outsourcing has significantly increased the efficiency of the running of organizations. This has contributed for the success of these organizations. Greaver asserted that “Outsourcing is a powerful tool when used appropriately” (Greaver M., 1999, P. 5).
The achievements of the act of outsourcing can clearly be demonstrated by the case of Visteon and IBM. Visteon is an auto parts manufacturing company while IBM is an outsourcing company which offers its services all over the world. According to the report given by Berniker (2003) IBM has taken the operations of the Visteon as their external provider, an act which has cut the costs which Visteon has been incurring in the execution of contracted operations significantly.
One of the importances of outsourcing is that organizations are now able to uplift its long term growth and profitability. Berniker (2003) observed that Visteon’s decision to have IBM as their external provider of their IT services would boost its long term growth and profitability.
Another importance of outsourcing is that it improves the organizational efficiency of the company (Hunter I. & Saunders J. 2006). Many organizations are engaged in several activities in the process of their production. These activities are diverse and may require different resources for their execution. In this case, it is advisable for the organization to consider outsourcing services in order to improve efficiency. Most of the leading companies in the world have applied the system of outsourcing to increase their efficiency. For instance, the great outsourcing contract between IBM and Visteon which has recently been transacted (Berniker 2003). Visteon has given IBM the control over its data centers as well as the help desk systems. Through this contract, Visteon will be able to increase the efficiency within the organization. IBM is widely known for their high class expertise on the field of IT. This makes them more qualified to perform these duties in a more efficient way than their client would.
By outsourcing some of its activities, an organization is able to cut down extra expenditures on technology. In the modern world, the level of technology has improved at a great deal. Some of this technology is usually very expensive and may require a substantial amount of investment. In this case, outsourcing saves the company the cost of such investment. For instance, Visteon has discovered that it have managed to cut down its investment costs in technology after handing over the management of the IT unit to the IBM (Berniker 2003).Apart from technology, many other activities involved in the running of an organization may require a substantial investment on equipments. In this case, it is advisable to hand over such an activity to an external provider who may be ready with the necessary equipment. The resources freed can then be used in other functions.
Outsourcing is also very useful in saving time. There is a lot of specialization in the process of outsourcing. People are involved with the activities which they can perform best. In this way, time resources are saved. There is no time wasted by the workers through shifting from one activity to another. According to Berniker (2003), Visteon was able to focus on its main business activities after contracting the management of IT unit to the IBM.
Through outsourcing, the organization is able to achieve positive customer feedback. This is because there is an increased attention on the side of customers. When organization outsources some of its activities to the external provider, there is little disruption of the flow of services to them. There is also increased quality of the products reaching the customer.
In the process of transferring the assets to the external providers, the organization is able to raise funds. Outsourcing therefore can help in raising funds for the business when it is at difficult financial situation. The funds generated can then be used in the expansion of the business.
As Greaver (1999) observes, outsourcing gives an organization an opportunity to access the market through the external provider. For instance, an organization may be at the early stage of development. It may not have fully established the market for its product. In this case, it is advisable to consider outsourcing the activities of marketing in order to enjoy the already established network of the provider.
Finally, the process of outsourcing have has increased the probability of acquiring innovative ideas. While seeking for an external provider, an organization considers the providers who have a good record on the outsourced field. This opens a room for innovative ideas. Without outsourcing, there will be very limited chances of innovation since human resources are involved in a variety of activities. This reduces chances of coming up with new ideas. An organization is also able to absorb some innovative ideas from the external provider which it may apply on another field within the organization.
Although outsourcing has been very rewarding to many organizations, it suffers some limitations.First, the process may cost an organization extra costs. Before the handover of the control of certain activities to an external provider, it may be required to transfer the knowledge to the external provider (Hunter I. & Saunders J. 2006). These resources and efforts may not have been put into account in the business plans. This disrupts the running of an organization to some extent.
Embracing an external provider may bring changes in the way activities were being done previously in an organization. In this case, the employees may resist these changes. In such a situation, the activities of an organization may be affected causing an organization to suffer unnecessary losses. In other occasions, employee’s productivity may decrease as a result of a change in the working styles or new management. Like in the case of Visteon and IBM contract, employees who have been previously working for Visteon are being forced to work with IBM.
According to Hunter I., & Saunders J. (2006), the human resource function may take too long to adjust to the changes where they are required to manage the products from the outside provider instead of directing the process which leads to production of the output.
When an organization decides to involve an outsourcer in its activities, its main assumption is that the provider will perform better in the allocated field. However, the outsourcers may not perform as they had promised. This makes the organization to lose at the expense of such outsourcers.
Another problem associated with outsourcing is that the outsourcer may fail to co-operate with the organization (Greaver 1999). In such a case, the smooth running of the organization may be disrupted. This is demonstrated in the case of Visteon and the Ford Motor Company. We can see that Visteon was incurring more costs before contracting with IBM. This is after failing to co-operate with Ford Motor Company (Berniker 2003).
The outsourcers may also experience the transition problem when taking the operations from their customers. This may lead to time wastage and unnecessary wastage of resources. There is also dependence on the skills of the third party when outside providers are involved in the operations of an organization. This may lead to inconveniences incase the outsourcer withdraws his service from the organization.
Current and future applications and relevance of outsourcing to the workplace
The act of outsourcing has a very significant impact on the working place. The working styles have significantly been altered by the outsourcing system. These changes are aimed to minimize costs and maximize efficiency in organizations.
Outsourcing has led to reduction of the number of employees in the work place. By so doing, organizations have overcome the problem of congestion in the working places. The number of consumer devices has been growing rapidly in the organizations and is expected to increase in the future (Unisys 2010). This increases the complexity of the operations in the working place. To overcome this problem, many organizations are running for external providers to help clear this ‘mess’ in the work place.
In the case of Visteon and IBM outsourcing contract, it has been demonstrated that there is an expected future expansion of the outsourcing industry. This is because organizations are experiencing positive changes in the work place through the process of outsourcing.
The relevance of the outsourcing in the work place has increased more than ever. This has been fueled by the frequent changes that have been taking place in the current world. In today’s world, technology has been changing at a very high rate. This increases the urge to seek for external assistance from the outsourcers.
Unisys observed that outsourcing services have assisted organizations in the provision of day to day operations as well as maintenance of enterprise applications which has helped organization in cutting down their costs (2010). Organizations have been relieved from those critical applications that are very complicated which would otherwise have reduced efficiency in the company. For instance, the technology applied by Visteon is very complicated. It requires them to use a high level of competence in order to satisfy their customers. In this case, it becomes advantageous to seek assistance from an outside provider like IBM who is highly qualified for such applications.
In conclusion, from the above discussion, it can be seen that outsourcing has contributed handsomely to the success of many organizations especially in the modern world. Many companies have managed to enjoy expensive modern technology which they would otherwise not have afforded.
Outsourcing has also helped in economic growth. Many out sourcing companies are expanding at a very high rate. For instance, IBM‘s services divisions earned $36 billion in 2002 (Berniker 2003). This contributes to expansion of the economy.
However, there is a fear about the future of the jobs. According to the Wall Street Journal (2005), Americans are having the fear that outsourcing may deny their children employment opportunities in the future. But the real impact of outsourcing has not been established since there is no good record of jobs transfer. There has been a long debate of the citizens fearing to lose their jobs to other countries as the politicians fear to lose their power to other politicians. This has threatened outsourcing activities across the countries (Wall Street Journal 2005).
Berniker M. (2003): IBM Closes Major Outsourcing Deal with Visteon. Retrieved October 5, 2010, from http://www.internetnews.com/bus-news/article.php/1583091/IBM-Closes-Major-Outsourcing-Deal-With-Visteon.htm
Greaver M.(1999)Strategic outsourcing: a structured approach to outsourcing decisions and Hunter I., & Saunders J.(2006) HR business partners. England: Gower Publishing Limited.
The Wall Street Journal (2005).Understanding outsourcing. Retrieved October 5, 2010, from http://www.wsjclassroomedition.com/outsourcing/
Unisys (2010). Application Modernization and Outsourcing - Application Outsourcing Services. Retrieved October 5, 2010, from http://www.unisys.com/unisys/theme/index.jsp?id=16000046&pid=1036400010000010000