Outsourcing Phenomenon

Abstract

Brown and Wilson (2005) explained that outsourcing is the act of obtaining services from external resources to open new opportunities for organizations and businesses, and it is a growing phenomenon that represents great opportunities to many organizations, and also imposes challenges to its applications. The business process for outsourcing markets, vendors, and their capabilities, capability benchmarking of service providers, location evaluation and assessment is lacking reliable information on outsourcing which leads to a serious mistakes that can be made by many organizations.

A good example for such mistakes is the initiation of outsourcing relationship with the provider without an evaluation of the market alternatives, can easily lead to a higher price. Outsourcing can be a complicated undertaking task for management when they lack the understanding of the statistics of such phenomenon that reveal important information such as:

 

  • 50% of the organizations that involved in outsourcing indicated that they face challenges because of their lacking of project management skills.
  • 50% of these organizations indicated that they are lacking the right process for specifying the work required for outsourcing companies.
  • 40% of these organizations did not have the right metrics for measuring performance with outsourcing.

With the above indications, challenges that face these organizations with outsourcing will likely obtain fewer benefits from such phenomenon, and also will impact the customer satisfactions rate, and that will lead to the increase of the risk of outsourcing failure (Brown and Wilson, 2005).

Brown and Wilson (2005) explained that for organizations to maximize of the outsourcing opportunities, the following steps have to be considered:

 

  • Evaluation of the business processes have to be cleared and documented.
  • Identification of outsourcing opportunities has to be aligned with business processes.
  • The selection process of the vendors/suppliers/partners has to be accomplished through certain requirements that can lead to the maximization of the benefits.
  • Contract negotiation has to be based on the market survey, and based on the understanding for the market prices.
  • Switching vendors when the outcome results do not meet the business requirements.
  • Measuring process for success has to be in place.

Brown and Wilson (2005) indicated that by following the above steps, organizations and businesses can obtain great benefits for many companies, and some of these benefits are:

 

  • Sales Opportunities can be increased by outsourcing.
  • Public relations; and corporate image can be improved.
  • Annual cost can be reduced instantly.
  • Outsourcing can open the opportunities for companies to focus on competencies, and engage with the market challenges.
  • Increase the customer’s satisfaction by extending the services.
  • Cost of projects and events can be lowered to the minimum.

Strategic Outsourcing

Organizations has to work in building a long relationship value with the outsourcing company instead of using different vendors with no strings attached to get the job done. This relationship will be promoted over time from vendor-supplier arrangements type of relationship to long-term partnership that will lead to mutual benefits (Brown and Wilson, 2005).

Click and Duening (2004) explained that with the well-established of the global communications and being reliable consistently, business process outsourcing initiatives became an important step in the global merge. Business process outsourcing is the movement of business process from inside any organization to the external service providers that became available due to the reliability of the global communications. With the global merge, many countries started to be identified as hot spots for the business process outsourcing, some of these countries are:

 

  • India– specialized in exporting services such as engineering and technical skills.
  • China– specialized in exporting services such as manufacturing and technical skills.
  • Mexico– specialized in exporting services such as manufacturing.
  • United States/Canada – specialized in exporting analysis and creative skills and products.
  • Philippines– specialized in exporting services such as administrative skills.

Click and Duening (2004) explained that each of these countries spans the range of business activity, and created comparative advantages of the complex economies in the specific functions. With the availability of the business process outsourcing, organizations started to eliminate the business processes that are not part of the core competence of their organization. Some of these business processes that were eliminated by the business process outsourcing are: customer services, call centers, technical support, payroll, and benefits administration. With conducting the business process outsourcing, organizations are facing different challenges, some of these challenges are:

 

  • Establishing a true vision of the future of the organization with outsourcing.
  • Creating a transition of management and leadership for the new outsourcing to be part of the business.
  • Establish an understanding of the outsourcing transition with the internal staff.
  • Dealing with different cultures that will be affected by the transition of the outsourcing.
  • Dealing with job loss due to the new changes in the management and outsourcing.
  • Creating the performance benchmarks that maintain the business continuity.

Most of the business processes outsourcing contracts do not provide the flexibility to represent the responses required for organization to manage an ongoing future projects. For that reason, organizations has to develop a separate document that can take care of the fluid situations of these on going projects, and that document should be part of the legal contract. The purpose of that document is to spell out in detail the changes over time that might need competitive conditions to run these ongoing projects (Click and Duening, 2004).

Outsourcing can be complicated endeavour if it’s built on unrealistic expectations of cost savings and fast returns on businesses investment. Organizations have to develop the strategy that can be used as a platform to enthusiastically support the opportunity to reduce costs, innovation, increase productivity, services, and generate higher returns for shareholders. When outsourcing tasks are planned and executed well, the initiative can be extremely successful. Outsourcing can be a good business choice when the organization is being based on a solid business model and being led by executives who know to create the right relationship between the organization and the outsourcing companies (Dominguez, 2005).

My Experience with Outsourcing

My experience with outsourcing was with two companies, Manulife Financial Group, and Bank of Montreal. Manulife decided to outsource a project that will extend their client ID from 6 digits to 9 digits due to the expansion of the business. The project led to creating internal project that was required to encrypt some of the client’s information before shipping the applications toIndia. The project faced with many hurdles and they ended up paying more money than expected to get the job done.

Bank of Montreal decided to build a web based application withIndia, once the application was ready for the deployment, the bank was faced with a lot of problems due to the lack of knowledge transfer between the Indian team, and the internal staff in the bank. Also, the time shifting wasn’t convenient to the bank to raise issues, and communicate with the outsourcing company. The bank ended up taking care of the supporting issues, and re-writing some of modules to be able to satisfy their clients.

Conclusion

A recent study revealed that 70% of business and organization that committed a part of their business process to outsourcing had significant negative experiences with the project. These organizations are exercising greater caution in approaching their outsourcing initiatives due to the hidden costs in outsourcing expense. For any organization to make the outsourcing initiative completely success story; it is imperative for such organization to build the right team and skills to lead to the changes within the organization for outsourcing replacement. Some of tasks that this team has to learn; is to understand the new culture that will be merged to the business, the style differences to identify, and specific success factors that will turn the organization’s outsourcing enthusiasm into an evenly operating machine (Dominguez, 2005).

References

Brown, D. & Wilson, S. (2005) Black Book of Outsourcing: How to Manager the Changes, Challenges, and Opportunities, John Wiley & Sons, Incorporated [Online]. Available from: http://site.ebrary.com.ezproxy.liv.ac.uk/lib/liverpool/docDetail.action?docID=10114144 

(Accessed: 14 November 2009).

Click, R. & Duening, T. (2004) Business Process Outsourcing: The competitive Advantage, John Wiley & Sons, Incorporated [Online]. Available from: http://site.ebrary.com.ezproxy.liv.ac.uk/lib/liverpool/docDetail.action?docID=10114108

(Accessed: 14 November 2009).

Dominguez, L. (2005) Manager’s Step-By-Step guide to Outsourcing, McGraw-Hill Companies [Online]. Available from: http://site.ebrary.com.ezproxy.liv.ac.uk/lib/liverpool/docDetail.action?docID=10131956

(Accessed: 14 November 2009).

 

 

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