Effective Outsourcing Allows Companies to Focus on Their Core Business - Case Study Example

Effective outsourcing allows companies to focus on their core business Name: Course: Code: Date: Introduction According to Douglas & Scott (2007) Outsourcing entails an organization determining that some of its activities can be implemented by another institution on behalf of the organization. Most of the outsourced activities are not core activities. It has become an essential option for various organizations and for many years companies have sought cheap labor and increased profit. Douglas & Scott (2007) states further that outsourcing is not at all times straightforward, it requires keen monitoring. Contemporarily, companies are more pushed than before to confirm returns on investments when outsourced arrangements are complex and involve highly valued inter-related activities which project the long term comprehension from of lasting reimbursement from outsourcing a challenge. Clearly businesses are facing a new challenge: a delivery system of outsourcing which is of high value activities and that which demonstrates value over time across the entire business functions. Nonetheless, even with such expectations, a lot of client companies do not have ample information that can assist them in measuring and quantifying the returns on outsourcing investment. Outsourcing with added cost provides just expenses and less work a factor that cannot provide favorable business growth environment, hence, cost effective outsourcing is most favorable. Before a company makes a decision to outsource some of its work, a survey should be conducted and market study to attain better understanding on Return on Investments. Importance of outsourcing Ian et al. (2009) states that some of the importance of outsourcing as indicated below: Focusing on Major Activities: In the period of rapid growth companies experience expansion in their operations. Such operations consume resources at the cost of core activities. Outsourcing such activities allow concentrating of core activities that are the pillar of the business without sacrificing quality in the production. Cost and Efficiency Savings: the functions of the back office are complicated in nature and in most cases prevent the business from performing at a reasonable and consistent cost in such occasions it is advantageous to outsource. Cost and Efficiency Savings: Overhead expenses incurred in back offices activities are very high. It is considerable to outsource those functions that can be easily moved (Marc, Ashlyn & Dara, 2007). Operational Control: When the costs of operation run out of control the consideration to outsource in important. Those departments that evolved with time are usually poorly managed and an outsourcing company can in turn bring excellent management skills. Staff Flexibility: outsourcing allows operations to have seasonal demands, this helps in bringing additional resources. Continuity & Risk Management: uncertainty and inconsistency brought about by high employee turnover can be avoided through outsourcing. This rescues the company from the risk of substandard levels of operations. Develop Internal Staff: outsourcing brings skilled worker to work together with employees at times this improves the skills of the employee on their line of work. A major factor in finding outsourcing company that is cost effective is the value of its shareholders. According to Judith (2006) company’s share value reflects guarantee on its revenue and its ability to implementation of the task. Australia as a country has a low cost environment i.e. lower departmental costs and provides cost effective solutions for outsourcing for both small and large businesses. It has many skilled employers who understand the entire project cycle and complete the task within a short duration at low cost, round clock services are also provided. These assist in completion of the work within the stipulated time and also provide additional services from the ordinary work. There are definite factors that should be considered while outsourcing any kind of task. Making a decision in outsourcing necessities one to look at the reward and the setbacks of outsourcing. Right reasons of outsourcing help a company to expand. Outsourcing has been a major element to the success of online business. If the appropriate tasks are effectively outsourced and the core matters handle by own company the business achieves a stability that leads to success. The chief reason to failure at outsourcing is the failure to prioritize tasks and fix on what to be outsourced and what not to be outsourced. Proper outsourcing is a skill learnt and perfected by business persons. One of the most important factors to proper outsourcing is communication with the vendor; most projects fail due to insufficient communication. Frequent communication makes sure that the manager keeps informed on the progress. The art of frequent communication with the service provider clears up lots of issues. This restrains the vendor from seeking support anytime they are unsure of anything. Hence, the project will be implemented much easily and effectively. The second factor to effective outsourcing is avoiding taking huge undertaking as the first outsourcing project. The starting project is supposed to serve as testing. In a learning curve to outsourcing having a preliminary small start up is resourceful in either side of the equation. Experience from different firms with small projects gives a person a chance to seek different results and responses. It is essential to be cautious when starting on outsourcing, taking risks that are calculated. Outsourcing involves contracting out the management and accountability for both major and non-core activities. Think your steps through in advance because one wrong move is all it takes to throw your entire project off course. Be sure to put a plan in place that uses outsourcing for the greatest possible impact on your project. The cost to business: outsourcing necessitates contract management activity for either party as an additional cost. This cost is hidden. Both parties go through a process as an additional opportunity cost. Such hidden cost at times outweighs the often quoted savings. Outsourcing in Australia One of the Australian outsourcing company is the AusPhil which is an offshore inbound and outbound call centre. AustPhil which is a call centre based in Philippines offers cost effective solutions for both out and inbound telemarketing needs (Voss & Fynes, 2002). Other companies that offer outsourcing services are the IBM, CSC and EDS. IBM has invested over $5 billion in contracts dominating the scene through the Advantra and IBM Global Services Australia. This is a joint venture that has incorporated local business partner such as Lend Lease Corp and Telstra. Advantra on its side has been a subject of sedate controversy with Ipex and EDS (Advatra competitors) questioning the Australianness of Adantra. The complexity of this deal has ranked IBM one of the top worldwide. Telstra’s asset management and Procurement are done electronically with emergent of electronic chain supply management system that involves eight suppliers and several resellers. Another company that has outsourced management of its desktop systems in Australia is Optus which is the second largest Australian carrier. Optus is currently part of the Compaq computers (Barbara & Barbara, 2007). The largest suppliers of outsourcing services in Australia have driven the cost of entry by new individual players high thus making it preferable for others to join the market as joint ventures. A lot of competitive pressure from emergent players likes the Citibank, shell, Lend Lease, Andersen Consulting among other service providers wanting to specialize in outsourcing business process. When looking into outsourcing, there are two popular options in regard to contracts i.e. Materials and Time and Fixed Price. The two a fore stated approaches have their advantages though there are other several models to consider. Set up a contract model that is easy to work with Fixed Price This model work best when the project is totally scoped out and stable, the need for innovation is minimal, little dependencies and nothing is expected to be adjusted. Fixed prices have an advantage on budgeting; the partner is expected to institute some leeway into the price in order to lower the price. The contracts that have fixed prices do not consent many changes. In case of any alteration with the initial project renegotiation of the contract is initiated. Some problems also rise when there is another outsourcing firm that pending the completion of one’s work for it to commence. Fixed price indicates that one pays full price of the contract regardless of the time it will take no matter whether the project is underestimated or overestimated. Time and Materials This offers a lot of flexibility. Most of the outsourcing partner like the time and material project in view of the fact that it gives a chance to innovate to add or to change features that are most valuable to the users. It is easy to make adjustments as the projects goes on. With time and material contract it is essential to know that the partner is reputable. When a firm is used to outsourcing the management find it complicated to control the offshore provider as to the normal processes within the company. Outsourcing creates potential redundancies to the firm and in other cases employees express lack of interest and quality for the work. While outsourcing services i.e. the services of processing payroll and taxing the outsourcing provider access information thus threatening the confidentiality and security in outsources. The firm lack customer focus when outsourcing is implemented. Other disadvantages include misunderstanding of the contract, poor quality, lack of communication and delayed services in the midst of others. Although outsourcing is cost-effective there are a lot of hidden costs like the legal costs that are incurred while the contract is being assigned between companies. A lot of time and effort is also spent in the process of assignment. Conclusion The outsourcing market in Australia is small and approximated to be worth $30-$65 million; however it is gathering momentum with it value increasing tenfold in a period of five years twice the growth speed of international industry. This is due to innovation like the leaseback deals and large scale deals. The supply side is vastly concentrated, however there are few established players dominating long-term private contracts and the government tenders. Small and medium have in recent times been the focus of attention in Australia and IBM and EDS have planned for a 20% growth in BPO and e-business services. If this dynamism is maintained a room for niche players will be created in the Australian market (Ilan & Leslie, 2009: Kate, Mike & Karl, 2010). Despite the effect methods of outsourcing there are some factor to be wary of when outsourcing such as, the services provider may be giving services to other companies thus they do not give 100% concentration to the firm. At the circumstances of a bad economy the providers of the service will take the project with very low prices for them to maintain their competence (Malhotra, 2002). It is important that wise choice of cost effective outsourcing solutions are taken as all the other aspects are put in to consideration. Companies are supposed to improve their ability to assess the benefits attached to outsourcing. The benefits usually surpass onetime cost saving. The benefits strongly recount to the competitiveness of the company and in most cases they symbolize the essential factors of success in industry. Bibliography Douglas. B, & Scott W. 2007. The Black Books Of Outsourcing: How To Manage The Changes, New Jersey: Prentice Hall. Ian. Julia & Leslie P. 2009 The Handbook of Global Outsourcing and Offshoring Upper Saddle River, NJ: Prentice Hall. James. B. Outsourcing Advantages: A Back-Office Operations Illustration retrieved on 15th May From: http://operationstech.about.com/od/officestaffingandmanagem/a/OutSrcAdvantg.htm Barbara. J, & Barbara M. 2007 Business process outsourcing: process, strategies, and contracts New York: McGraw Hill Companies. Judith. A. 2006 Outsourcing training and development: fact Outsourcing management information systems for success Upper Saddle River, NJ : Prentice Hall. Kate. V, Mike. L, & Karl M. 2010. Vested Outsourcing: Five Rules That Will Transform Outsourcing Hoboken, NJ: Hoboken, NJ: Economy publisher. Malhotra, N. 2002. Basic marketing research: A decision-making approach. Upper Saddle River, NJ : Prentice Hall. Marc J, Ashlyn M & Dara G. 2007. - Outsourcing management information systems Outsourcing management information systems New York: McGraw Hill Companies. Nicholas C. 2006. Outsourcing: the definitive view, applications and implications (2 ed.). New Jersey: Pearson education, INC. Ruth T. 2007. Outsourcing and human resource management: an international survey New York: McGraw Hill Companies. Voss, C., & Fynes, B. (2002). The moderating effect of buyer-supplier relationships on quality Practices and performance. International Journal of Operations & Production Management, 22(6), 6-10. Read More