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Outsourcing’s Benefits and Negative Aspects Essay

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Updated: Dec 2nd, 2019

Introduction

With increased competition in today’s business world, organizations are compelled to adopt new strategies that will distinguish them from the rest. Change within organizations is therefore a very common occurrence.

According to Wood (1), organizations are made to undergo numerous changes to address the issue of competition. These may include redesigning structures within the organization, venturing into new grounds, introducing new technologies and products etc. A new idea that is now central to operations of many organizations in the United States is outsourcing.

In outsourcing, a company or an organization subcontracts part of its operations to a third party agent. A definition given by Elmuti (1), regards outsourcing as an approach where an organization delegates major but usually non-core operations to specialized service of providers. These are functions that an organization is not good at and are thus given to others who are better (Kumar & Eickhoff 246).

Though favored by many businesses in America, it is surrounded by so much controversy and many Americans are convinced that organizations involved in outsourcing are denying them an opportunity to earn. In this paper, I will discuss the benefits and negative aspects of outsourcing, effects on organizational behavior and finally, what can be done to facilitate an easy transition for all stakeholders.

Benefits and Negative Aspects of Outsourcing

Outsourcing or offshoring as it is sometimes referred to, can be beneficial to an organization in a number of ways. Wood (1) argues that besides making it easier for executives to make decisions much faster, outsourcing also opens a new a venue for income to the organization. Another key benefit of offshoring is the significant reduction in labor costs.

There have been repeated allegations by offshore vendors that it costs one five times less per hour to have an IT job done in Bangalore, India or even in Beijing, China than it will cost to have the same job done in the United States (Overby 1). Obviously, this is not acceptable to everyone.

While businesses will celebrate decreased production costs, the ordinary citizen will perceive this as a negative development for the American economy. A job seeker for example, will be concerned about the fact that jobs have to be transferred out of the country leading to an increase in the level of unemployment locally. On the other hand, others are afraid that the outsourced companies my not be experienced enough to do the job and this may lead to compromised product quality.

Overby (1), however, challenges claims by these offshore vendors. Although he agrees that one can save substantially by outsourcing, his argument is that it is not possible for anyone to save as much as 80 percent as in the above scenario by outsourcing. He demonstrates this by citing United Technologies, a leader in the development of offshoring best practices that is able to save slightly over 20 percent outsourcing to India.

Elmuti (1) shows that if successfully put into action, offshoring can result in other benefits such as improved capability and quality of products, increased production capacity and the organization also gains muscles to face competitors, among others. However, an organization will not have much control on the way that some services will be carried out. If the outsourced company fails to deliver as agreed, the organization will be negatively affected as the customer may not be very pleased (Elmuti 1).

Another dilemma that comes with outsourcing has to do with employees. Out of fear that they will lose current positions, or that they will be forced to acquire new skills, employees will become a stumbling block to the transfer of important knowledge (Wood 1). With this in mind, it is very critical for organizations plan for proper transition.

According to Overby, hidden costs of offshoring include; costs for vendor selection, transition, layoffs and managing outsourced contracts. The actual costs and estimated costs in these undertakings will greatly differ (1-7).

Effects of Outsourcing on Organizational Behaviour

Offshoring drastically changes the dynamics within an organization. First of all, employees become less motivated and eventually, this affects their levels of output. Morale among workers is destroyed and the last thing they want to hear mentioned is outsourcing. In my own opinion, this is a problem that cannot be cured by money. Staff may be required to skill up so as to meet demands of the new organizational structure. Organizations may start lay-offs and this is certainly an expensive engagement.

Planning a Successful Transition

According to Wood (1), the number one factor that hinders progress is the lack of interest. Management must therefore do all that is necessary to see to it that employees are in agreement with whatever decisions are being made. Workers should be convinced beyond doubt that everything is being done to their advantage.

Wood (1) lists some important success factors that should be followed by any organization that wishes to venture into outsourcing. Wood points out that all employees must be recognized as stakeholders in the organization. The knowledge they possess is very critical to the success of the organization (1). Another recommendation is to ensure that every head of department develops a plan of communicating with employees in their respective departments from the early stages of implementation (Wood 1).

It is also vital to consider how organizational objectives differ and thus conflict with the interests of employees. Wood further argues that there must be adequate transfer of employee knowledge and an effective plan for continuous change must be in place (1). Other strategies include having clear objectives and making the right choice of outsourcing partners. All these are meant to facilitate a smooth transition with less resentment from employees.

Given that we are currently living in a very aggressive environment, it is my opinion that organizations must be willing to adapt to change so as to survive the stiff competition. Change is inevitable and flexibility is a valuable attribute for any organization or person seeking to excel.

Works Cited

Elmuti, Dean. The Perceived Impact of Outsourcing on Organizational Performance. American Journal of Business Vol. 18 No. 2. (2003).

Kumar, Sameer & Eickhoff, Jason H. Outsourcing: When and how should it be done? Information Knowledge Systems Management 5 (2005/2006) 245–259.

Overby, Stephanie. The Hidden Costs of Offshore Outsourcing. Framingham: CXO Media, Inc. 2003. Web. <>

Wood, Ronald. Managing the Transformation. New York: Axiom Consulting, LLC. 2009. Web.

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