What Should Be Outsourced, Results and Hazards of Outsourcing - Essay Example

First, greater pressures on margins which, in turn, drive the need for improved operational efficiencies; second, the need to refocus on core competencies in order to improve competitiveness and third, growing numbers of easily available and capable specialist providers. Added to this is the fact that technological advances now make it easier for business to be conducted across many locations and partnerships. It should be noted that businesses are constantly re-evaluating their strategic operations and the definition of core and non-core is consequently in a state of flux.

What is viewed as core today will not necessarily be viewed as core tomorrow. Certain core activities can be outsourced if there is considerable fluctuation in demand that does not justify a full-time increase in headcount. The decisions on outsourcing are generally strategic. Deming (1982, cited by Odindo et al, 2004) advised companies to reduce the number of suppliers. Fewer suppliers with long-term commitments can improve a company’s operation. “Not having to deal with many companies helps to minimize the complexities and costs that may result from inconsistencies and variety when more than one service provider is used” (Odindo et al, 2004).

Sometimes companies outsource to their competitors when the only competency to serve them is found in competitors. Odindo et al (2004) have also pointed out that outsourcing can be used to harness innovation and talent beyond the confines of a company. It is not easy or generally possible for an organization to have all the talent required for the company to innovate. Using outsourcing providers gives a company access to the provider’s innovative capabilities. The very nature of the financial services business means that companies are suitable candidates for outsourcing and many have become highly sophisticated users of these services.

Financial services companies have fewer ties to a particular geographic location than other businesses and only a small proportion of their interactions with customers need to be face-to-face.