Outsourcing is a process that involves the identification and selection of a third party, which is either an organization or an individual, and assigning a particular share of the organization’s activities to it. The selected party should be openly specialized in collecting events (Bilan et al., 2017). The main reason why an organization conduct outsourcing is to ensure cost efficiency. Peter Drucker classified the many tasks that a business undertakes into two categories. Each floor has a “front room” and a “back room.” He emphasized that the “front room” entails all the tasks directly related to their parent company, while the “back room” refers to the auxiliary ones. He contended that a business’s back office functions would be outsourced to another business, making the latter the business’s front office (Navidi, 2018). Numerous modern-day examples of outsourcing may be found. Tata Consultancy Services (TCS), an Indian software powerhouse, handles numerous JP Morgan’s back office tasks, including payroll administration. Wipro, another Indian company, handles the outsourcing of HSBC’s back-office operations.
Outsourcing benefits an organization in different ways; for example, when lower-level employees are delegated to an outsourcing partner, upper-level executives and managers may devote more time to developing the organization’s overall strategy. Outsourcing usually aids in optimizing resource consumption, leading to increased output (Somjai, 2017). With massive data administration outsourced, the outreach team may focus on high-level initiatives like planning new outreach programs. In addition, the cost of recruiting new workers is higher than the cost of paying temporary workers through outsourcing (Somjai, 2017). Lastly, outsourcing provides external businesses and individuals a platform to demonstrate their competence for job vacancies.
Consider a lending institution that must employ a collection team to recoup overdue monthly payments from borrowers. Indoor practices would be the first option. This will result in a massive workforce spread out over the world. A greater workforce would increase expenses such as those associated with equipment prices, training costs and salary. However, if the parent firm outsources the task to a collecting agency that deals with a large number of other financial creditors, the sole cost to the business is the agency’s yearly fee (Ushkarenko et al., 2017). By default, the second option is the most cost-effective one. Risks are reduced because the outsourcing company is less likely to make mistakes because of its prior exposure to various back-end activities. Compared to an internal process, outsourcing has no room for error.
As much as outsourcing is beneficial, it also offers risks that each parent firm should consider. Firstly, the selected organization can assume control of the firm’s management if the wrong measure are used; this is because the third party is considered a stakeholder in the firm. Secondly, Wages and salaries paid to outside workers might add up quickly if the firm plans to outsource for an extended period (Somja, 2017). Additionally, the third party has detailed knowledge of the company’s flaws, and thus may be tough to let them go.
To save money, I would outsource the firm that has the lowest bid. Considering simply price, the option between the two possible vendors would be the Mumbai Company if only cost is to be considered. However, different parameters other than cost should be considered in real life. I would consider the following when choosing the company to outsource. I will study the firm’s vintage, the market know-how, and the customer list of the third party. In addition, I will consider how much the party appeals foreign customers, financial sustainability and the total cost incurred (Hadi, 2018). In conclusion, distance does not matter much in today’s world because of the abundance of readily available communication technologies that eliminate the need for physical travel.
References
Bilan, Y., Nitsenko, V., Ushkarenko, I., Chmut, A., & Sharapa, O. (2017). Outsourcing in international economic relations.Montenegrin journal of economics, 13(3), 175-185. Web.
Navidi, H., & Hadi Paykani, M. (2018). The Impact of Outsourcing the Government Agencies Activities on the Organizational Structure.Journal of Industrial Strategic Management, 3(2), 1-11. Web.
Somjai, S. (2017). Advantages and disadvantages of outsourcing.The Business and Management Review, 9(1), 157-160. Web.