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The term outsourcing is referred to as the tactical use of outside business resources so that the activities of the business are performed by the internal staff and resources effectively. It is a strategy through which the organization makes deal with the service providers who perform the major functions of the organization in a specialized and efficient manner to ultimately become the valued partner of the business(White and James, 2017). The organizations are now outsourcing its employees from the organization to an outsourcing company. This literature review is about understanding the advantages and disadvantages of outsourcing the functions of the company to the outside service providers.
The objective of this literature review is to identify and understand the advantages and disadvantages of outsourcing the functions of the business. Now a day companies are opting for the service providers to outsource their certain business functions. There some of the reasons which resulted in the outsourcing of certain business functions (White and James, 2017). The aim of outsourcing the business functions is to ensure that all the components of the business are able to meet the needs and requirements of business through successfully outsourcing. The aim of this project is to have the detailed acquaintance regarding the benefits and limitation of outsourcing the business functions to the outside service provider.
The scope of utilizing the business functions outsourcing is broadening as toady it provides assistance to the organizations. Various functions of the organization are being outsourced so that the business operates efficiently and effectively. The term outsourcing refers to the process of the contract between the business and service providers in which the company gives the contract to the services providers to perform the part of the internal business activity being a valued business partner (Eva, et al. 2014). With the increased competition and complicated business environment, outsourcing the activities or functions of the business is increasingly important so as to achieve competitive advantages over the rivals and also attain the objectives of the business.
Butler and Callahan (2014) stated that the word outsourcing in the business is defined as the process of contracting out the internal activities and actions of the business to outside providers. This outsourcing results in the successful formation of valued business partners who performs the major functions efficiently and specialized manner. The authors highlighted certain reasons that serve as the basis of outsourcing certain business functions. Cost cutting was one of the most important and common reasons to outsource the functions of the business in earlier times.
Now the drivers are the most tactical and focused on carrying out the internal activities that are adding value to the business and support in utilising their own core competencies. The author also suggested some critical areas that are needed to be included so as to succeed in outsourcing programs. Supplier and vendor selection, clarity of business goals and objectives, relationship management, and open communication are some of the critical areas for successful implementation of outsourcing program. The authors concluded that it is the responsibilities of the manager to ensure that the outsourcing initiatives of the enterprise are successful and consistent.
Gerbl et al (2015), regular activities are handled by some business but hey need external assistance in taking new projects the need certain employees who are expert and proficient while there are some businesses who are unable to manage daily activities. The prime motivation of the business is to focus on the core business activities of the business so as to improve the opportunities for growth and progress thus resulting in the increment in the efficiency and effectiveness and improve by eliminating the costs.
It is essential for the companies to seek the ways through which the expenses of the business can be managed as the economy has been challenging and complicated. There are certain functions of the business that can be outsourced, according to the authors, that are administrative tasks like scheduling, data entry, and other administrative tasks, generating leads and other customer services, accounting and other financial duties, marketing, IT operations and humane resource. The administrative tasks are not core business activities of the business but are essential for the proper functioning of any business. The purpose of the service provider is to generate the lead for the business so as to maintain the qualified staff. These are some of the business activities suggested by the authors that can be outsourced so that the business goals are achieved by satisfying the needs of the customers through reliable customer services.
Chou et al (2015), outsourcing is one of the biggest deal in the economy of the company and country. The authors have suggested to decide and take on the tasks that the employees of the company are good at and outsource the tasks that need special skills and expertise. It is essential for the employees and other staff members to have clarity on the business and its goals and objectives so as to take a decision on the functions that are needed to be outsourced that will help them in accomplishing the objectives of the business.
The authors suggested some tasks like legal services, health insurance, printing which fairly obvious while other tasks need to be outsourced. Some tasks that need personal expertise can be outsourced for example maintaining the accounts and bookkeeping and creating a website or designing a logo. There are some crucial aspects of the business that should not be outsourced. There are certain tasks that can be outsourced initially and then bring in-house later like recruitment or advertisement etc.
Hirschheim and Dibbern (2014) stated that it is a procedure of delegating the activities of a business to the external agencies, service provider or third party. With the globalization of the economy, various new opportunities are identified that benefits ranging from the low-cost labour to improvement in the quality of product and services. The operational costs and other labour costs are to be minimized which is the primary reason as to select outsourcing for the company. If the outsourcing of the functions of the business is properly done then it will have a significant impact on the revenue recognition for the company and elevate the significant savings.
It is essential to focus on the core competencies or processes of the businesses as these processes are time-consuming. The authors suggested that enable to leverage the knowledge of the companies providing access to the excellent competencies. The outsourcing of the business function helps in freeing up the internal sources that can be delegated for other purposes is beneficial realised for the business. The delegation of functions of the business that are difficult to be managed and controlled, transfers the responsibilities to these external agencies. The authors have summarised that there are various reasons that depend on the vision and purpose of the activities as to undertake the outsourcing by the company.
Caruth et al (2013), outsourcing is one of the essential necessities of the business as it provides the opportunity for the members to focus on the core competencies or the processes of the businesses. There are certain reasons that help in identifying the needs and requirements of the outsourcing of the business functions. Before outsourcing the business function, the authors suggest looking for the pros and cons of the outsourcing the business functions. One of the pros of the outsourcing is that it elevates the flexibility of the businesses. It is beneficial for the business as this helps in the cost efficiency of the business.
There are consistent changes and technological advancement in the outsourcing business environment that is the reason the company chooses to outsource their organizational tasks so as to have the flexibility of time and quality control. The major con of outsourcing is the risk of security on the data and information also on the privacy perception. These are some of the pros and cons of outsourcing the business operations to the third party or agencies.
Schniederians et al (2015), the small-sized business has the issue of limited resources by staffing the internal department by supporting the basic functions of the business. Various functions of the business include the marketing, sales, accounting, human resources, customer service and maintaining the public relations and many more. It depends on the size of the business and disposable resources which determines the outsourcing of certain functions of the business. The major benefits of outsourcing according to the authors is to save the time and cost for the business. Another biggest advantage of outsourcing the business function is handing over the business functions to the employees that are highly qualified and talented.
One of the major disadvantages is lack of regular monitoring and confidentiality that adversely impacts the functions of the business. Loss of confidence of the client is another practical threat that provides a poor experience to the clients that might result in confusion or misunderstanding. Thus the author concluded that the business needs to consider the size and available optimal resources before taking a decision on the process of outsourcing the business functions. Hence the outsourcing has both the benefits or limitations of the business functions.
Gurung and Prater (2017) stated that the outsourcing of the functions of the organization is the strategy of business where the activities and responsibilities are transferred from organization to the external service provider. This is done by contracting agreement with agencies or service providers who take the responsibilities of business functions. The outsourcing of business functions allows the business is to focus on the core competencies of the business to create a competitive advantage thereby reducing the fixed and operational costs. The benefit of outsourcing is that the entire function or part of it can be outsourced as it can be temporary or permanent in nature.
The disadvantage of outsourcing business functions like human resources, payroll services, marketing services, and accounting services and much more is the potential risk and service quality. Another disadvantage is the language barrier that creates hurdle or dissatisfaction among the customers. There is a risk as the external agencies might not manage and control the same standards and the mission. Outsourcing of business functions leads to laying-off of employees. The authors have summarised that outsourcing the business functions can be either profitable or lead to loss since it is one of the crucial decisions to be made by the members of the organization.
Sonfield (2014)depicted that outsourcing the business functions not only brings the flexibility or financial freedom but also some major risks and threats. Before deciding upon the outsourcing, the company need to consider the pros and cons of the outsourcing. The management of non-core activities like back-office operations and other managerial costs via outsourcing helps the business in focusing on the core business processes. Another major advantage of the outsourcing is the efficiency of cost and time. There are certain operations that are not controlled by the organization which can be overcome by outsourcing.
There are certain disadvantages that are the risk of losing sensitive data and information along with the confidentiality. Unable to managerial control the function of the business is also the cons of the business function outsourcing. The lack of quality of service, labour issues and employee layoffs are the reasons that are adverse for the outsourcing of the business functions. Thus the author suggested that it is very important for the business organization to consider the advantages and disadvantages of the outsourcing while taking a decision on outsourcing the functions of the business.
Thus it is observed that outsourcing the business can be both beneficial as well as the threat to the company. Hence the company should focus on certain measures while providing the information and data to third-party service providers while contracting out the function of the business (Eva, et al. 2014). There are both advantages and disadvantages to giving responsibilities of specific business functions to the third party service provider. Therefore it is essential for the company to be careful while contracting with the service provider for the internal functions or activities of the company.
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