Introduction
Outsourcing refers to the planned use of resources acquired from other agencies. The outsourced resources execute duties initially done by the people and machinery that internally performed the duties for the organization initially. After an assessment of the institution, the human resource department determines the need to introduce new resources to the organization (Weimer & Seuring 2009). In a corporation, the performance evaluation team can realize lack of enthusiasm among the internal staff.
Alternatively, other company resources such as computers could require replacement making it imperative to device an action plan. Through outsourcing, organizations including IBM are able to get external labor-force, machinery, and communication resources in order to improve the quality of their work. Outsourcing has many advantages and disadvantages; it involves an entire facility shift especially for companies that replace their resources completely (Miozzo & Grimshaw 2011).
Organizations that require new resources often sign contracts with agencies that supply the requisite human resources and machinery. Efficiency is paramount for organizations and outsourcing is a common means of getting the best resources for accomplishing tasks within the organization (Plunkett 2013). This paper intends to discuss how IBM benefits from outsourcing, and the demerits of assuming such a plan.
IBM
The International Business Machines Corporation (IBM) headquartered in Armonk, New York, United States, deals in production of technological devices. Many Banks use Automated Teller Machines and various scanners from the company. Besides physical production of such devices, IBM equally offers consultation services to various clients across the US and other countries in which it invests (Morschett, Klein, & Zentes 2010).
Considering that IBM is a multinational corporation, it needs to keep up with competition from other electronic firms that are likely to provide affordable handheld computers to replace IBM products. The world is volatile and so is the consumer environment. The daily societal needs keep changing as the external environment and the competitors influence them.
Research is an important element of a company such as IBM; it enables firms to offer services that fulfill the needs of the microenvironment and the macro-environment. As such, it is important for IBM to carry out a PEST-C analysis of its environment and a SWOT analysis of the organization. The two would be vital for IBM to device an outsourcing plan in order to replace the in-house team with new and creative individuals or machinery (Lasserre 2012).
Companies such as Samsung, Apple, and HTC venture into new productions daily. In essence, each competing force strives to carry out research in order to understand consumer demand. Sometimes, the employees working in-house cannot provide the requisite human resources to increase production (Watson 2013).
Consumer demands often change and become complex since resources will always be limited in comparison to consumers (Yanga, Wackerb, & Sheu 2012). Naturally, the supply and demand curve applies in this scenario since society expects IBM to device systems that succeed the existing products and services (Varajao 2012). This explains why customers will often demand for something new from the service providers.
The human resources at IBM and the machinery used to perform functions including the management have a direct link to the firm’s organization since its inception in 1945. After 102 years of service, the company needs to outsource fresh expertise from agencies that have the resources and capabilities to scrutinize people and machinery effectively (Ibm platform computing solutions 2012).
Currently, the company cannot remain productive by utilizing the resources it had in 1911 because the world needs new products and services. The company uses over 10 laboratories across the world to help creative employees generate and implement ideas. In addition, the same laboratories assist in patenting of innovations to stop competitors from acquiring such ideas (Varajao 2012).
Impacts of Outsourcing on IBM
Effectiveness
IBM Insurance Outsourcing Services (IIOS) ensures that the target organization gets resources that will increase productivity. IBM’s business objective is to provide efficient and effective services to consumers across the world. When the World Bank sought its services when acquiring the ATM machines, this signified the quality of services it provided (Miozzo & Grimshaw 2011). However, the needs of customers often change due to the volatile environment.
Outsourced human resources are likely to work harder as opposed to the internal team since job security is their priority. In addition, they get motivation from the amount of money IBM pays them after completing work. This increases productivity, which promotes effectiveness within an organization (Raman & Ahmad 2013). Secondly, outsourcing is important because it encourages specialization. In essence, the Insurance Outsourcing Services refers employees to IBM after thoroughly scrutinizing them.
Credible candidates often display a natural aptitude in the field of work. In addition, one has to possess academic qualifications that match the job description. After such an exercise, the IIOS comes up with a team that specializes in the relevant department that IBM seeks. Through specialization, the company will have the best team for each department and this would promote effectiveness at IBM (Milberg & Winkler 2013). Such a move is exceptionally essential for growth and brand positioning.
Risk Sharing
When employing human resources on a permanent basis, the employer has to take all the risks associated with the procedure. Sometimes the productivity levels of employees reduce when they have a full-term contract. In legal terms, it would be impossible to revoke such a contract unless the case is extraordinary.
At IBM, it shares the costs of employment with its outsourcing firm, IIOS. IBM Insurance Outsourcing Services employ people on limited term contracts (Noe 2012). Risk sharing helps the main company to remain calm throughout the recruitment period. In addition, poor performance of the employee is a responsibility of the trainer. In most cases, the outsourcing agencies train employees for various organizations and they bear the burden of revoking contracts (Milberg & Winkler 2013).
Concerning acquisition of machinery, IIOS has to provide warranties for the products they distribute to IBM. For the human resources, IIOS provides health insurance, pension schemes, and arbitrating managers whenever any of the issues arise. Risk sharing improves the relationships between the suppliers and IBM, and this provides the organization with an opportunity to encourage creativity (Gandhi, Gorod, & Sauser 2012).
The fact that another firm shares the risks of employment, and security with IBM offers it an assurance that it will remain sustainable for a long time. Throughout the supply chain, IBM and IIOS develop mutually beneficial relationships. IBM has an advantage since IIOS is its constituent, but IIOS equally provides outsourcing services to other companies across the US.
Diversity
Diversity is an outcome of outsourcing. When IIOS recruits employees, it assesses them for 6 months (Ebert 2011). The probation period creates an opportunity for the agency to understand the prospective employee at an interpersonal level. Even though people apply for the same job, they are likely to possess different gifts and academic qualifications. When employed within the same organization, each person will deliver their expertise for the overall productivity of the firm.
This encourages diversity, which translates into high productivity (Fay 2011). Diversity is important for firms because remaining competitive results from the creativity of employees and managers. IBM must embrace diversity because it operates in over 132 countries across the globe. As such, it should appreciate different culture and capabilities including the impact they will have on employees and consumers.
In most cases, companies that embrace diversity often grow in the modern world (Quintero 2012). Globalization and multiculturalism are a reality that companies can only handle by embracing diversity in employability.
IBM’s diversity enables the company to develop new and innovative ideas because the firm has researchers, developers, data miners, marketers, and other employees sharing different responsibilities (Lutz & Ritter 2009). Diversity promotion occurs through teamwork, which IBM supports through its motivation packages. Employees exercise their potentials and contribute towards general firm progress through different teams (Carettas 2009).
Quality Assurance
Quality assurance is important in business. Companies seek for an opportunity of growth by providing quality assurance. Outsourcing provides quality assurance because IIOS has the sole responsibility of training IBM’s prospective employees. In addition, the machinery outsourced to IBM must be of the best quality.
Legal terms play a huge role in determining quality assurance because breaching of contracts leads to compensations (Cai, Ci, & Zou 2011). In such scenario, IIOS would not be able to offer substandard employees or machinery to IBM. First, when IBM finds out that the supplied commodities or services are of a low standard, they have a choice to return or seek legal assistance.
In return, this would affect the reputation of the outsourcing firm, which is IIOS in this case. Since IIOS provides similar services to other firms, there is a possibility that other companies would refrain from employing the agency’s services.
The Risks and Benefits for the Firm from Engaging in Outsourcing Activities
Risks
Time Consumption
The training period of 6 months consumes time that IBM would rather use to train the internal team concerning new and innovative ideas in the market. At IBM, the company would probably take three months for training and probation. IIOS would not undergo any losses because its function is to train employees while IBM recruits the staffs. IBM could face huge losses while waiting for employees or machinery from IIOS, however, an effective strategic plan would be important for solving the situation (Delaney 2009).
Susceptibility to Human Error
Outsourcing materials or humans from IIOS would be risky for IBM because human error could occur. During probation, it would be difficult to determine the effectiveness of humans or equipment especially when IIOS involves the least supervision strategies. Most sourcing firms view human error as negligence and this could cost the outsourcing firm a lawsuit.
Image
The supplier and sourcing organization could disagree on the quality of the outsourced materials or human labor-force. When scandals occur, they daunt the image of the outsourcing firm, and this affects their ability to serve other organizations (Gold 2012).
Benefits
Cost Effective
The agency that trains employees incurs costs that would otherwise facilitate a similar program in the firm of the employer. As such, IBM is likely to save costs related to training. The company will only need to orient the recruits at work even though IIOS receives payment after training such individuals. Besides, the trainees utilize resources at IIOS and this saves similar resources at IBM. Finally, sharing risks save costs for both the vendor and the clientele (Kroes & Ghosh 2010).
Independence
Sometimes, it is beneficial to employ people who have no connection with the firm to do certain duties. For instance, an in-house team at IBM would not take a task seriously as an outsourced team (Haugen, Musser, & Lovelace 2009). This means that the outsourced team enjoys autonomy from the firm. Coupled with a good pay, they are highly likely to offer the best services.
Relationship Building
Once the supplier and the outsourcing organization work together, there will be development of mutually beneficial relationships. The outsourcing firm would recommend other companies to the supplier or continue receiving the services in order to maintain the supply chain (Miozzo & Grimshaw 2011).
Executive Support
When companies support each other during recruitment of employees, they lessen the burden of costs and risks (Babin & Nicholson 2012). Executive support reduces the possibilities of human error, and it encourages development of long-term and mutually beneficial relationships.
A plan to offer services from a vendor viewpoint
In the following plan, the vendor must comprehend the limitations of the resources to the firm and customers as well. The outsourcing plan needs to consider the fact that the organization is multinational and has about 12 research laboratories in different countries across the globe. The vendors will have to consider the needs, tastes, and preferences of consumers before offering their services.
Theoretical Perspective of the Plan
This plan will recognize the resource-based view strategic theory (RBV). According to the theory, organizations often identify goals and implement strategies of achieving the same within a certain period.
Most organizations set goals, introduce performance contracts, introduce a strategic plan, and restructure the entire organization (Brewer, Ashenbaum, & Carter 2013). The resource-based theory assumes that the organization’s strategic plan plays a huge role in determining its scope. This happens because a strategic plan aims at using the company’s resources to achieve its objectives.
The plan
The vendors should assess a company’s position and resources in order to provide the right training environment for prospective employees. In addition, the firm should have a good reputation (Watson 2013).
Strategic Plan
The vendor should provide resources that match the goals and objectives of the firm in the next 3-5 years.
Relationship Management
The vendor should have a long-term and mutually beneficial relationship with customers and other company’s stakeholders in order to prove trustworthy.
Contract
This firm will employ people on limited contracts and the vendor should consider this during training (Gewald 2010). Additionally, the contract and service level agreements with the vendor need the presence of a legal authority.
Procedure
The plan will recognize the six months of training and employee probation while at the vendors station (Qu, Oh, & Pinsonneault 2010).
- Execution will take 1 week;
- Implementation will take 1 month 2 weeks;
- Evaluation will take 2 months;
- Final agreement will take 2 weeks;
- Closure will take 1 week
As such, the vendor should follow all the specifications of the customer in order to maintain good relationships. The vendor seeks to save costs because training and production of equipment in-house is an expensive exercise (Raghuram 2009). This applies to IBM’s case because, lately, it disengages from processing computers and software. In addition, it extensively engages in outsourcing employees from IIOS. This is cost-effective, and it helps IBM to remain competitive (Virtualized business intelligence with InfoSphere Warehouse 2012).
Recommendations
Within a supply chain, communication is vital. The vendor needs to have open and effective communication throughout the process in order to determine the effectiveness of each step. It would be irrelevant to communicate without a plan (Calder & Watkins 2010). In most cases, the consumers often leave the vendors to develop an outsourcing plan.
This could be a disadvantage to the outsourcing firm. First, the vendor who operates without directives or specifications could give a variety of opinions, some of which are difficult to choose. Secondly, the devised plan of action might not suit the existing strategic plan of the organization.
Another important factor is ignoring distractions and focusing on the main agenda (Weimer & Seuring 2009). For instance, in a resource-based view, an organization understands the amount of resources it has and correlates the same to the goals. Other companies would assume a social or economic approach to such issues.
Each direction chosen needs to have popular representation from the vendor in order to avoid blame games in case risks transpire. Outsourcing in the current society is an ordinary activity that many companies should give a try (Stahl & Bjorkman 2012). Besides cost effectiveness, it creates employment opportunities to several consultants.
Conclusion
In summary, most outsourcing firms are likely to give technological solutions today since many people demand for the same. In essence, vendors have a significant research role to play in order to understand the direct and indirect consumers within the supply chain. This explains why IIOS and IBM have to keep contact all the time, as they operate in a constantly changing environment, thus making them to need each other’s services.
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