Effective Outsourcing Allows Organizations to Focus on Their Core Business - Coursework Example

Effective outsourcing allows organizations to focus on their core business Name: Instructor: Course: Date: Effective outsourcing allows organizations to focus on their core business Introduction Outsourcing involves companies contacting out to other companies their tasks to have them carried out on their behalf. With effective outsourcing, organizations are able to save on costs and adapt better strategies, which increase on the efficiency of carrying out their responsibilities thus enabling them to focus on their core business. Organizations have in the recent past, adopted strategic outsourcing strategies, which enable organizations to save on their overhead costs when they outsource processes in manufacturing, marketing, engineering from companies with specialties in such fields (McIvor 2011.pg.30). When organizations outsource they progressively concentrate on vital areas because of the benefits drawn from accessing specialized capabilities of suppliers in the wide range of the organizational processes. To realize the best domino effect from outsourcing organizations should consider adapting to precise strategies for all their needs and those of their clients to give the best results. Much is very beneficial to a company’s well-being but at the time exposes the organization operational, strategic and legal risks as well loss of control and cultural-social problems as the organizations no longer deal with their clients one-on-one but through another party who provides the services (Hendriske &George, 2003). Effective outsourcing involves scrutinizing dimensions of outsourcing which provide outsourcing strategies for strategic management. The intent of writing this report is to describe the dimensions of outsourcing, importance of relationship strategy and two Australian organizations that outsource their services from other industries (McIvor, 2011. Pg 32). Body Ulli Arnold of Stuttgart University described dimensions of outsourcing as a combination of core competencies and transaction cost economics. Arnold in his paper argues that every outsourcing problem is developed based on an organization’s economy. From the economic theory, he explains the approach of economics of an institution to give applicable outsourcing recommendations. The core competencies revolves around the capabilities of the suppliers of the business processes, an outsourcing company must therefore conduct comprehensive research before determining who they are going to outsource to as this gives them a competitive advantage. Through proper accounting and conceptualizing of the core abilities best outsourcing strategies are developed to achieve effective outsourcing (Arnold, 2001). Ronan McIvor in his article “outsourcing done right” considered three dimensions that should be considered in discussing outsourcing decision. The first is relative capability position, which involves understanding the reasons as to why firms perform differently. By analyzing the difference in performance, this stiffens competition between companies who are players in the same industry because some firms gain advantage over others in the manner that they conduct their organizational processes. Relative capability position dimension requires that an organization also examines and determines the performance difference in relation to their competitors and suppliers. Through relative capability position, an organization gets to determine the performance difference between organizations and external providers of the business processes to whom they are likely to outsource, through a dimension an organization gets to accomplish a competitive advantage through the performance of critical processes. The second dimension considered by McIvor was potential for opportunism, in this dimension companies adopt strategies, which enable them deal with supplier opportunism in outsourcing, in this dimension key considerations are put in place such as vendor opportunism, which is illustrated through presence of human and physical assets, number of capable suppliers in the supply market. uncertainty in the business environment and in the organization. another key consideration is outsourcing strategies, which help the organizations to deal with supplier opportunism. in outsourcing such as adopting relationship, strategy under this dimension an organization can consider business process breakdown, which helps to reduce the complexities of the business strategy by redesigning the business process into a number of several specific and more standardized processes with some transactional characteristics. The last dimension by McIvor is contributing to competitive advantage, this dimension determines the how a business process contributes to competitive advantage; outsourced processes possess strong capability for the organization and are thus determinant on the ability of a company to gain profits. Low competitive advantage has a limited impact on the company, as there is limited ability to achieve a high cost position (McIvor, 2011. Pg 33-34). Kenneth A. Polcyn a Senior Consultant at Deva Industries, Inc. in his article considered dimensions of outsourcing as the major tasks which lead into thriving outsourcing these include; 1). establishment of a fair price for the outsourced business process 2). careful definition of rationales and provisions to which must be adhered to 3). proper understanding of business goods and services in relation to the expected quality 4). carrying out research and generating a viable suppliers list to whom an application for scheme is sent 5). negotiating for favorable terms in the case of termination or damage and finally proper management of the vendors in relation to their requirements (Polcyn,2003). The relationship strategy is adopted when outsourcing is considered as being suitable, relationship strategy helps organizations chose their suppliers and is mainly influence by the potential of opportunism; a relationship strategy can therefore be in the form of a recurrent contract, non-specific contract on a relational contracting. Many argue that partnerships developed through collaboration with vendors help to increase competitive advantage, collaboration can also be used to build flexibility in the relationship and reimburse for the subcontracted periods. Different relationship strategies vary in terms of their duration and appropriateness of the business process. A firm rapidly outsourcing for a technology-intensive component should adapt recurrent contracting as it is characterized by moderate levels of asset transaction-specific investments, the long-term relationship is therefore developed and maintained for as long as the supplier has a strong view on technology. relational is also long-term and is crucial to competitive advantage it is characterized by a limited number of suppliers who dictate the elements of transaction (McIvor, 2011 Pg 35). The non-specific contracting is short-term; the market is dominated by independent buyers and sellers making it highly competitive, with suppliers competing for business from buyers who share similar outsourcing requirements. Depending on the term of contract an organization is thus able to make the right sourcing decision based on the relationship strategy, that is am impression of the collaboration of the suppliers and the buyers (Rashed et.al, 2000. Pg780). The IT market in Australia has experienced a lot of outsourcing mainly stimulated by the Australian government and the large companies; the major factors which drive outsourcing in Australia are the need for enhanced quality services as well the tendencies of many managers to want more time to focus on fundamental business activities (Sohal & Beaumont, 2004. Pg.688). An analysis commissioned by Convergys shows that outsourcing in Australia is on the rise; a flawless example of an outsourcing organization is that of Pacific FX, which in 2009 outsourced services from IP scape to have their contact centre upgraded with the IP scape based alert, track and route systems as well as the management work flow. The IP-based service combines call log information, VoIP, generation of interface reports, visible per second billing and work flow management. The General Manger admitted that the Pacific FX traders estimated a 40% estimated profit improvement from the installation of the IP system. Pacific FX traders offer marketing services to Wealth FX, which is, provides educational programs on foreign exchange services. Prior to the installation of the system Pacific FX provided support to Wealth FX through a telemarketing, model. However, after outsourcing the IP system was flexible, highly profitable and of higher agent productivity. Another example of an Australian organization that has outsourced their services is Mind pearl, being an international contact centre; Mind pearl expressed interests to set up a 1000-seat contact centre facility in Fiji in 2009, which has since been completed, Fiji being a major tourist destination has a lot of room for expansion for such the IT business. The facility in Fiji is meant is projected to have employed three thousand people by the end of 2013. Pearl mind outsourced for the services of builders and contractors to set up the $8 million facility in a deal that was signed by Narayan Francis (Sohal & Beaumont, 2004 Pg. 689). Pacific FX decision to outsource was to make improve the It services they provided to Wealth FX while at the same time making profits from efficient outsourcing from IP-based services, this helped them to focus on the core business activities and access expertise through the acquisition of the IP-system (Hendriske &George, 2003). Pearl mind made an eight billion dollar investment to set-up a the contact centre in Fiji, this was a decision that was aimed at meeting Fiji’s demand in IT while at the same time pearl mind was able to access the more resources in Fiji. by contracting out the building services to the contractors Pearl mind managed to avoid financial improbability through the fixed cost paid for the whole construction that was sealed through the deal. Pacific FX by contacting IP scape outsourced for IT services that were provided by IP; Pearl mind outsourced for human resource through the contactors and the employed in the new facility (Sohal & Beaumont, 2004 pg. 690). In conclusion, the increased competency in specialization and greater system involvedness has resulted in the materialization of new organizational forms of synchronization mechanism in relation to the wide range of activities and functions in the organizations, because of this disturbance the organizations have been made to adapt outsourcing due to the dynamism of economy and technology. the main dimensions to successful outsourcing is through focusing on the core competencies and strategic sourcing and collaboration. The small medium business enterprises in the IT industry find it difficult to penetrate in the market due to the high competition posed by the large industries this is because SMEs are unpopular and cannot keep up with the evolving technology due to constrained funds (Abdul et.al 2004 Pg. 131). In my own opinion, I believe that the best strategy in outsourcing business processes is through good relationships between the suppliers and the vendors because not all risks can upshots are coverable through permissible contracts. References Amrik Sohal, Nicholas Beaumont, (2004) "Outsourcing in Australia", International Journal of Operations & Production Management, Vol. 24 Issue: 7, pp.688 - 700 Gilley, Matthew, Jeffrey E, Abdul A. R 2004. “Perceived Environmental Dynamism and Managerial Risk Aversion as Antecedenta of manufacturing Outsourcing: The moderating Effects of Firm Maturity.” Journal of small Business Management 42, no.2. pp 117-133 Gilley, Matthew, Rashed.A (2000), “Making More by Doing less: An analysis of Outsourcing and its effect on Firm performance.” Journal of management 26. Pp 763-790 Hendriske, George (2003). Economics and management of organizations. TX: McGraw-Hill Ulli Arnold (2001), “New dimensions of outsourcing: a combination of transaction cost economics and the core competencies concept”, University of Stuttgart ; Stuttgart, Germany Kenneth A. Polcyn (2003), The Dimensions of Outsourcing: A Perspective, Deva Industries, Inc. web: Retrieved on 14th May 2011 McIvor. R (2011), ‘outsourcing done right’, Industrial Engineer, vol43, no.1, pp30-35. Read More