2.2 Definitions of Outsourcing
Some of the definitions that are given about outsourcing include the following:
According to Harrigan (1985), outsourcing can be defined as the ‘buy or make’ decisions’ to that help in obtaining the necessary supplies of services and materials for the manufacture of the services and goods.
According to both Loh and Venkatraman (1992) in their book, they state that vendors who operate externally have provision of human and/or physical resources that are associated with the user business‘s technological information of the infrastructure.
In their book, Lacity and Hirschheim (1993) define outsourcing as one that consists in helping conduct one or even more activities of an organization by the help of external agents.
Other definitions of outsourcing include the following:
• Outsourcing is considered to be the act of a one turning to an organization that operates externally to help perform a function that was being performed in – house previously. This process entails the shift of the administration, planning and development of that given activity to a third party that is somehow independent.
• Another definition is that Outsourcing can be said to be a contracting – out of the
group‘s major activities and functions to a goods or service provider that operates externally.
• A group of philosophers also defined outsourcing as one that does not only comprise of buying services or products from external parties, but also helps in transferring of responsibility for company functions and the associated knowledge to the organization.
• Outsourcing is the substitution of exercises performed in –house by securing them remotely, despite the fact that the firm has the essential administration and money related capacities to create them inside. It is additionally an abstention from performing exercises in-house.
• It comprises of getting an outer supplier to perform an errand beforehand executed by the association itself, and might likewise even include new exercises.
• Giving over some or the majority of that specific action and related administrations to an outsider administration, for the required result.
• The operation of moving an exchange beforehand administered inside to an outer supplier through a long haul contract, and including the exchange to the seller that works externally.
• Joint effort agreement between diverse sorts of firms in which one firm is an expert in innovation and makes a critical commitment to the next by giving physical and/or HR amid a sure period so as to achieve a decided target.
The review of the diverse definitions uncovers that most creators concur that outsourcing implies going outside the firm to procure decided activities that are most certainly not prepared inside. On the other hand, the definitions show some diverse fractional angles, since the recommendations made by the creators depend on the reason for their exploration.
Along these lines, we can order the definitions into three sorts:
• those that consider, outsourcing involves a steady, long term joint effort understanding in which the supplier turns into a key accomplice and where there are trade relations with autonomous firms;
• those definitions that indicate the sort of movement or administration that can be outsourced, i.e. exercises and benefits that are not non
• key for the firm those definitions that consider that outsourcing is an activity that exchanges arranging, obligation, information and organization of exercises, all through contracts
In light of all the above definitions, a coordinated definition that includes all parts of outsourcing and provides a casing of reference for this study can be recommended as takes after:
“Outsourcing is a key choice that involves the outer contracting of decided non – key exercises or business forms vital for the production of merchandise on the other hand the provision of administrations by method for understandings or contracts with higher capacity firms to attempt those exercises or business forms, with the point of enhancing focused advantage”
Another prominent and well – acknowledged meaning of BPO offered by Gartner – Dataquest is the designation of one or more IT – escalated business procedures to an outer supplier that thusly claims, controls and deals with the chose process in view of characterized and quantifiable execution criteria.
After analysis the process of outsourcing in an organization, it is important to note that almost all organizations are now outsourcing because of some of the benefits that it brings along. The analysis focused the discussion on how some small companies do outsourcing since they cannot afford to hire skilled personnel or rather train their personnel to perform the required duties. As a result, the outsourcing process has various benefits and disadvantages which are analyzed in this chapter.
The table below outlines various advantages and disadvantages of outsourcing;
· Profit is realized from wage differentials
· There are issues that comes along with the quality and delivery
· Economies of scale and labor productivity, flexibility and efficiency, operations that are streamlined
· Management becomes difficult to control
· There is always the ability to focus on competencies that are core
· The control of the internal service providers shows weakness
· There is ability for the conversion of fixed costs to variable costs, which as result translates to lower prices for consumers
· Possibility of loss in data security, intellectual property and sharing of proprietary technology and sensitive data
· Ease and flexibility in responding to unexpected changes in business cycle
· Customer knowledge and institutional knowledge base is lost
· There is ability to provide customers with services round the clock
· The host country’s political stability affect the business
· Management of the levels of workforce becomes flexible especially in the labor market that were previous inflexible
· There is deterioration in employee relations hence management resistance
· Introduction of generic treatment that leads possible customer backlash
The figure below outlines the relationship between various factors in an organization and the process of outsourcing. The incentives of outsourcing are clearly outlined and above all the various risk factors are also considered.
Some of the advantages of outsourcing are as discussed below:
a. Improved service
While utilizing an administration supplier whose center is administration, customers of HR see a checked change in adaptability, reaction, and execution. Most firm’s addition control of their administration levels, on the grounds that their outsourcing assenting can measure deliverables in the contract.
b. Specialized expertise
Some companies can find the laws and regulations that help in governing the HR management to be complex that they end up having no alternative but to outsource. The laws lead them to landing in specialized experts that getting the best services.
c. Organizational politics
Some organizations decide to outsource so as to help them getting rid of some of the departments that are trouble and people are performing less or not performing at all.
d. Strategic Focus
Businesses perceive that they can’t seek after fabulousness in all territories. Along these lines, they choose to concentrate on their center fitness, for example, client administration or advancement, and move auxiliary capacities, for example, advantages organization, to firms in which these capacities are a center capability.
Solution suggests or recommendation
• State Your Expectations Clearly:
The company should not dismiss the fact that it is sourcing to achieve two overriding goals: (i) to have the sourced capacities or forms performed at a larger amount of value by an accomplished administration supplier that is in the matter of performing those capacities for some clients, and (ii) to have those capacities performed more cost effectively on the grounds that the administration supplier has a great deal more scale and influence (e.g. purchasing power) than the organization outsourcing the capacity.
• Get Negotiating Leverage as Early as Possible:
As it has been noted, service providers and their form service agreements tend to be quite one-sided favoring the service provider. The company that wants to outsource should consider using its own form of services agreement, assuming that it has been prepared by an experienced sourcing lawyer.
• Give Due Attention to Relationship Management
Numerous sourcing connections keep running into issues basically in light of the fact that the gatherings’ interchanges lines separate. The Understanding ought to set up an extremely very much characterized interchanges and question determination network.
• Termination of Relationship
Sourcing connections once in a while don’t work out in view of minor “terrible science” between the customer and the administration supplier. Some of the time this happens with no genuine break by the administration supplier. A customer ought not be constrained into staying in a “terrible marriage” with an administration supplier. Progressively, customers with arranging influence are having the capacity to effectively arrange an early leave methodology, with generally low early end punishments.
It is important to note that several companies especially the small ones are outsourcing some of the services or professional acts that they require to realize the company’s overall goal. These companies prefer outsourcing over other alternatives because of some of the merits it offers such as a reduction in cost of hiring or training personnel, strategic focus on the company’s main goal, flexibility of the company among others. However, there are a few disadvantages that are associated with outsourcing among them low employee morale, management resistance, possibility of loss of intellectual property among others. All in all, outsourcing is considered a key aspect in the development and success of a given company.
Harrigan, K. (1985). Strategic flexibility. Lexington, Mass.: Lexington Books.
Loh, L., & Venkatraman, N. (1992). Diffusion of information technology outsourcing. Cambridge, Mass.: Center for Information Systems Research, Sloan School of Management, Massachusetts Institute of Technology.
Lacity, M., & Hirschheim, R. (1993). Information systems outsourcing. Chichester: Wiley.