Various Dimensions of Outsourcing Decisions - Coursework Example

Running Header: Outsourcing Student’s Name: Instructor’s Name: Course Code: Date of Submission: Outsourcing Outsourcing is the contracting by one firm of some of their operations or services to another firm. In most instances, large firms usually outsource their production services to firms in oversee in an effort to take advantage of the available cheap labour according to King & Torkzadeh (2008). Another reason why firms outsource is an effort to save money. The firms that outsource contract other organizations or engage specialists firms to offer services other than trying to provide the services on their own. The intention of this discussion is to highlight what various writers identify as the key dimensions when discussing the outsourcing decisions. The essay will also discuss how the relationship strategy approaches to contracting enable organizations chose to outsource. The essay will also describe and compare two Australian organizations have outsourced their services. Several writers have identified and discussed various dimensions of outsourcing decisions. Such researchers and writers include John Wacker, a visiting scholar and researcher at Arizona State University, C. L. Yang, an assistant professor at Chung-Hua University, Ronan McIvor, a professor at Ulster University, and Chwen Sheu, the Paul Edgerley Chair in Business Management at Kansas State University as argued by McIvor (2011). This is after collection and analyzing data from 970 manufacturing companies in 17countries. In order for any process of outsourcing to be effective, they are a number of key dimensions that need to be analyzed according to the above researchers/writers. Such include process contribution to competitive advantage, relative capability in the process, and potential for opportunism from process outsourcing. Analyzes of every dimension gives a firm several sourcing strategies. It is therefore crucial to take into consideration these dimensions when discussing outsourcing decisions as illustrated by Geis (2010). The determination of how the process contributes to competitive advantage is one of the key dimensions to the outsourcing decision. The critical processes to competitive advantage and the ones that organizations posses a strong capability to should remain internal. In an effort to remain in a strategic position, such processes should be given significant levels of strategic attention. Critical processes to competitive advantage have a great effect on the ability to attain competitive advantage. This is through either the ability to create a higher differentiation levels or attaining a lower cost position that competitors. However, non-critical processes to competitive advantage have less impact to the organizations position. Potential for opportunism from vendors is another dimension that should be taken into consideration according to writers. They are several indicators that assist in identifying opportunism. Such include investment presence in human or physical assets dedicated to a specific relationship will create switching costs for a firm as argued by McIvor (2011). The presence of fewer capable suppliers, difficulties in measuring performance of suppliers, uncertainty, and complex interdependencies are some of the other indicators. However, they are several strategies of dealing with opportunism in outsourcing including retaining the process internally, adopting suitable relationship strategies, and reduction of process complexity through redesigning into several processes that are non-specific possible to be provided by more than one supplier. Relative capability position is a third dimension that involves understanding the reason why a firm differs in terms of performance with another. It is through conducting some processes in a superior way relative to the competitors that an organization is able to attain relative capability. In the outsourcing decisions, it is crucial to determine if an organization performs specific processes relative to competitors and furthermore to suppliers as illustrated by Windrum, Reinstaller & Bull (2009). This assists in determining whether there is disparity between potential external providers and the organization. If the external providers perform less that the organization itself, then it is crucial for such operations to remain internally. A suitable relationship strategy should be adopted when the processes are considered appropriate for outsourcing. However, the strategy must be influenced by the potential for opportunism in the relationship. The relationship strategy approaches towards contracting helps organizations to select how the way to outsource. They are several relationship strategies that exist including non-specific contracting, recurrent contracting, and relational contracting. Non-specific contracting is a case whereby process can be sourced from several suppliers. This outsourcing relationship is primarily driven by contract on the basis of relatively short-term and the bargaining relationship between the independent suppliers and buyers. The main aim of this outsourcing is reducing the costs. Recurrent contracting is another relationship strategy that is suitable when organizational needs are specific. This strategy can also be employed when a firm wants to source a component that is changing rapidly and that is technologically intensive. Instead of developing a relationship that is long term, the relationship is maintained as long as the supplier is able to maintain a strong relationship in the technology. This enables buying organizations be able to switch to the suppliers more competent technologically. Another relationship strategy available which can be used is relational contracting. This relationship strategy involves taking up a collaborative and long-term relationship. This is of great importance in case the process is critical to high potential of opportunism and competitive advantage. This relationship strategy enables an organization to establish as well as build a relationship that is mutually advantageous with the suppliers. Australian Department of Finance and Administration (DOFA) is a small department of government in Canberra, the inland capital city of Australia. It is an organization that offers financial and budget management for the federal government where it offers financial services for staff and members of parliament, senators, as well as managing property portfolio for federal government. DOFA has outsourced various operations to experts according to Gary (2001). Some of the outsourced services include office services that comprise of record management, internal couriers, internal office management, and registry services. The second large process outsourced by DOFA is property management to the joint venture of Knight Frank and PricewaterhouseCoopers. DOFA has also outsourced its human resources to Pricewaterhouse Coopers. This is a rare process according to Fisher, who is the general manager, corporate of DOFA. Langdon Ingredients is a food manufacturing company in Victoria Australia that offers niche food products and other food ingredients to customers in Australia, Asia Pacific, and New Zealand. At one point, the legacy payroll system as well as the vendors who supplied it became a major problem to the company according to Gary (2008). The company executives decided to look for true outsourcing provider. The company outsourced its payroll processes. Langdon outsourced hosted ASP model epayroll of Aussiepay as well as employee self service, and eWorkflow (payroll maintenance) services. This is to ensure it takes care of the employees’ payments, management, and support reports. The company that Langdon has outsourced to is Aussiepay. This provides eWorkflow and ePayroll services to the company. Australian Department of Finance and Administration (DOFA) and Langdon are two Australian companies that have outsourced their services to other companies. Australian Department of Finance and Administration (DOFA) has outsourced its services due to reduce its work force and working space according to Gary (2001). This has enabled to it to reduce its high cost dead rents of the major quality buildings it was occupying. It has also cut down its workforce from 2000 to 800 due to outsourcing. It has gone to an extent of outsourcing its HR management services to PWC. DOFA has also been able to attain effective and effective working of its HR operations after outsourcing. On the other hand, Landgon outsourced due to difficulties it faced in incorporating Australian taxation levels such as termination payments and annual leave according to Gary (2008). Payment and workflow process also had difficulties that made it to outsource these services. The outsourcing processes in both companies have improved the delivery of services in both organizations. It has also assisted in improving the efficiency of their operations. Furthermore, this has led to reduction of operation costs in a greater way. In conclusion, it is crucial for the organizations to take into consideration the process of outsourcing some of their services. In my opinion, it is crucial for those services that do not play a significant role or contribute to competitive advantage be outsourced as effort of streamlining the operations of the organization. The outsourcing process is also crucial as a strategy of cutting down some of the operating costs. Australian Department of Finance and Administration (DOFA) and Landgon are such companies that have adopted outsourcing services in an effort to streamline their services. They have both outsourced some of their services that a not key to their operations. Therefore, it is recommendable for the companies to outsource their services that do not determine their competitive advantage position. References Gary, N 2001, Extending Australia’s Global Reach by Outsourcing’, Journal of Outsourcing, Vol. 8, no. 5, pp. 17-59. Gary, N 2008, ‘Outsourcer puts Spice in Australian Food Company’s Hosted Payroll’, Journal of Outsourcing, Vol. 9, no. 6, pp. 45-67. Geis, G 2010, ‘An empirical examination of Business outsourcing transactions’, Virgnia Law Review, vol. 96, no. 2, p. 241-300. King, W & Torkzadeh, G 2008, ‘Information Systems offshoring: research status and issues’, MIS Quarterly, Vol. 32, no. 2, pp. 205-225. McIvor, R 2011, ‘Outsourcing done right’, Industrial Engineer, vol. 43, no. 1, pp. 30-35. Windrum, P., Reinstaller, A & Bull, C 2009, ‘The outsourcing productivity paradox: total outsourcing, organizational innovation, and long run productivity growth’, Journal of Evolutionary Economics, Vol. 19, no. 2, pp. 197-229. Read More