The paper “ Why Organizations Outsource and the Risks and Benefits Associated with Outsourcing? ” is a brilliant variant of literature review on human resources. In normal cases, not every company can be able to supply all their needs. As such, they need the assistance of other firms to do so, by creating an outsourcing relationship. Numerous firms currently outsource their activities in order to enhance operational effectiveness and increase concentration on the major competencies. Kakabadse & Kakabadse (2000, p. 670) claim that outsourcing encompasses several business processes like management of information technology, manufacturing, logistics, human resource management, and financial services.
According to Harland et al. (2005, p. 832), the outsourcing drivers and advantages have broadly been documented in several kinds of literature, but serious opinions have also been put forth indicating potential weaknesses and risks. Based on the outsourcing topic, this essay will discuss some contrasting views and perspectives from the academic literature in relation to outsourcing and the different types of outsourcing. Also, the paper will analyze why organizations outsource and what are the risks and benefits associated with outsourcing. In the business arena, outsourcing is defined as an aspect of contracting out one's business process or processes to the third party (Contractor, Kumar V & Kundu 2010).
Blinder (2006, p. 115) contends that it is in the 21st century that the word "outsourcing" turned out to popular in the US. In some cases, outsourcing has involved transferring assets and workforce from a company to a company. Outsourcing has also been used to illustrate the process of transferring control of services to other corporations. Outsourcing can domestic or foreign contracting, and may also include relocating or off-shoring one or many business functions to another nation (Beaumont & Sohal 2004, p. 689).
This essay, however, will discuss offshore outsourcing where two firms enter into a contract entailing exchange of the services and payments. Research has established that this form of outsourcing help companies perform better in their major competencies and reduces expertise or skill shortage in activities they intend to outsource. According to Vinaj et al (2008), there are four major types of offshore outsourcing, which exist today including information technology outsourcing (ITO), business process outsourcing (BPO), offshore software development, (Software R& D) and knowledge process outsourcing (KPO).
Zafar (2013) holds that in information technology outsourcing, companies enter into a contract with another to provide programming services, supplying computers, internet services. In may also be in the form of software development and maintenance. In the Business process outsourcing front, the process entails contracting of the functions and operations of particular business processes to a company considered as a service provider (Mehrotra 2005). This process has been linked to the Coca-Cola Company, which outsourced some segments of the supply chain.
This type of outsourcing is a typical back office outsourcing, which consists of internal functions like finance, accounting, and human resource. In the Offshore Software Research and Development, the supplier who comes from a different country provides services which deal with software development (Willcocks et al. 2004, p. 8). The major reason behind applying an offshore software development type of sourcing is attributed to the higher cost of development from local service providers. Agarwal & Nisa (2009) posit that in the Knowledge process outsourcing context, the core information-based business process is outsourced.
Such activities are competitively vital for the value chain of a company. They maintained that KPO needs superior technical and analytical skills, including a high level of expert knowledge to conduct. KPO is conducted to increase specific expertise and knowledge, create extra value creation, reduce costs and improve skilled labor.