Outsourcing is a practice of contracting specialists or other businesses from outside the organization to complete specific tasks or fulfill particular responsibilities. Throughout the last thirty years, outsourcing has revolutionized the business world and became a strategy for gaining a competitive advantage over market contenders. In today’s dynamic environment, the pressure to be efficient is great as ever, and most businesses consider outsourcing a viable option. However, in business, there are no universal solutions, and before outsourcing a task or a function, the managing board should define the company’s current needs. This essay discusses the motivation behind outsourcing and outlines three reasons for choosing this practice.
Although cases vastly vary, some research papers showed that it is possible to single out three main reasons why organizations outsource. For instance, in a series of interviews with Barclay Bank’s managers in Kenya, Otieno (2014) discovered that the bank sought to reduce costs, attract qualified specialists, and focus on core activities. Gonzalez, Gasco, and Llopis (2016) came to the same conclusions while examining the outsourcing practices of major Spanish IT companies. All in all, the main advantages of outsourcing are cost-effectiveness, better management of human resources, and the ability to prioritize.
Inarguably, every business seeks to reduce fixed operating costs which can be attained through outsourcing. Large companies have to control various business processes, which requires more working staff. At some point, managers may conclude that they only need a specific service a few times a year, for example, accounting, which makes outsourcing the task more advantageous than hiring an in-house specialist in the said field. In a study by Shirzadeh, Heydariyeh, and Hemmati (2014), there has been found a meaningful relationship between outsourcing and inventory expenses; the practice has also proven to be time-efficient. Furthermore, outsourcing leads to a heightened cost-awareness, due to the need to develop a workable strategy. Akeem (2017) found that cost control has a positive impact on a company’s performance. All in all, as a conscious business decision, outsourcing is one of the ways to decrease expenditure.
Many companies are experiencing difficulties recruiting due to the shortage of qualified specialists in their area. In the digital era, this problem may be solved by hiring remote workers and collaborating with other companies. According to Deloitte’s Global Outsourcing Survey (2016), 28% of companies outsource to gain access to intellectual capital. It is crucial to point out the differences in outsourcing strategies in small and large businesses. The latter are often capable of completing the task in-house, although it may drain resources. On the contrary, for small businesses, finding experts outside the organization is often a matter of survival. All in all, whether an improvement or survival tool, outsourcing helps find workers with appropriate competencies.
Lastly, outsourcing allows companies to focus on their core activities. Each company operates a limited amount of time, human capital, and other resources, and non-value added activities might appear as an unnecessary burden that distracts from an organization’s core competency. When clearly defined and developed, the latter provides a foolproof competitive advantage. To set their priorities, the top management may be encouraged to rank business processes and outsource those that are non-profitable but crucial for the company’s overall performance.
Outsourcing is a global trend that is bound to gain even more traction in the years to come and shape the way people run businesses and make strategic decisions. Outsourcing has a complex impact on how a company operates, depending on the reasons why this practice was implemented in the first place. Although there is a variety of reasons why the method may be deemed advantageous, one may single out three main motivations. Outsourcing is proven to be cost-effective, especially in case an outsourced task is temporary or recurs regularly but not on a daily basis. This strategy lets companies discover specialists outside their area and concentrate on its core activities instead of evenly distributing resources, which is often inefficient.
References
Akeem, L. B. (2017). Effect of cost control and cost reduction techniques in organizational performance. International Business and Management, 14(3), 19-26.
Deloitte. (2016). Deloitte’s global outsourcing survey. Web.
Gonzalez, R., Gasco, J., & Llopis, J. (2016). Information systems outsourcing reasons and risks: Review and evolution. Journal of Global Information Technology Management, 19(4), 223-249.
Otieno, W. O. (2013).Outsourcing as a strategy for competitive advantage by Barclays bank of Kenya. Web.
Shirzadeh, A. R., Heydariyeh, S. A., & Hemmati, M. (2014). A study on effect of outsourcing on cost reduction: A case study of tile industry. Management Science Letters, 6, 133-138.