A Review of the Different Outsourcing Models Used By Different Companies

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Table of Contents

Abstract
Introduction
Outsourcing Models and their Application
Joint Venture Model
Subsidiary Model/Captive Development Center Offshoring
Service provider offshoring Model
Conclusions
References

Abstract

The business world is changing and getting more sophisticated every day. Many of the functions and operations of different businesses are getting improved even as entry of more players in different fields is increasing competition and forcing companies to seek for better strategies of survival.

Most of these strategies are aimed at increasing the quality of products offered hence resulting to customer satisfaction. Improved company performance and increased productivity is a prime goal of every organization.

One way in which companies may be able to achieve these goals and result to improvement of their performance is through acquisition of the most experienced and skilled labor force. This procedure, however, may result to high spending by the company due to increased costs of production, resulting to lowered returns.

Hence, companies have been left with the option of hiring the services of third parties who are more experienced and skilled yet cheaper to operate with. This is where companies require utilizing the different types of outsourcing services available to them.

There are different forms of outsourcing available in the market and each one comes with different benefits and requirements.

Introduction

Outsourcing involves a practice in the business that involves transfer of staff duties and functions to third people who are outside the organization’s labor force so that they may undertake the tasks in a more professional way or at a cheaper and faster manner. The third party may be an individual expert or specialist in a given field or an organization.

This process allows a third-party professional external to an organization undertake management of the different forms of work in a business. This factor causes an organization to require in-sourcing for its operations ands involves transfer of an outsourced work to a department within an organization where it gets fully managed by the organization’s employees.

Outsourcing also involves the event of different organizations opening up branches in other nations rather than their countries of origin so as to get employees there and hence have the required tasks done (Burns, 2001).

This third-party service provider is what referred to as the outsourcing agent. On the other side is the rule of outsourcing that is applied in different organizations. This is where an organization utilizes an outside firm to cater for a required function of the business that may be undertaken by employees within the organization but at a lower degree of quality and accuracy.

Outsourcing of work is important for most of the organizations as it increases an organization’s competitive advantage while on the other hand helping it reduce on the costs of obtaining employees and also to be able to access better and more productive labor resources easily and economically. Organizations are able to penetrate the target market easily as they understand the cultural requirements of the population.

They also reduce risks of venturing into the market as a new player and easily increase their image and satisfaction by customers. In addition, there is noted a lot of improvements in different areas within the organization such as projects, better service delivery, improved skills and ability to properly deploy the available technological applications within the organization’s processes.

The costs incurred and the general exposure of the organization in terms of its accounts and performance also get reduced. Lastly, there is avoidance of capital investment (Babu, 2005).

However, there is competitive in-sourcing which involves employees within the organization competing for opportunities with experts from outside the organization who can provide outsourcing services for the task to be undertaken. In situations where there is need for joint efforts co-sourcing is improvised.

This is where a type of work in an organization is undertaken by both the organization’s employees and resources external to the organization such as consultants or outsourcing vendors who possess a lot of knowledge and skills in the specific type of work being undertaken. A client would also rely on outsourcing to undertake different forms of work that he requires.

Shared services may also be utilized in the cases where outsourcing of a given form of work within the organization has been employed through use of a well-equipped and experienced department or group within the organization (Durkheim, 1984).

Large co-operations in different parts of the world use a method of selecting the right models to suit a certain or a particular business need to use for outsourcing. This involves selecting offshoring model. The whole process is long and involves a lot of strategizing and choice of the target market as well as determining the method of market penetration that the organization prefers to use.

Organizations may opt to select a list of preferred vendors to avoid the risk involved in the model. They can also opt to choose managers and source work. Offshoring can be expensive and a hard process altogether. Organizations hence need to invest into formulation of strategies to be able to select the most suitable, applicable and beneficial model for their outsourcing plan (Rothman, 2003).

Off-shoring allows organizations the advantage of being virtually present in a given target market even without its physical presence hence allows the organization easy penetration of the target market as well as increased competitive advantage in the market.

This study is aimed at identifying the different forms of outsourcing models available in the market, their requirements and benefits and also how they operate in real life situations.

Outsourcing Models and their Application

There are different models utilized by organizations during outsourcing. These different forms of outsourcing are defined by the resource being outsourced which may either be labor force, a project or an activity or function within the organization. They may also get defined through the nature of the relationship involved in the whole arrangement between the one providing outsourcing facilities and the one utilizing them.

Organizations are usually left with a lot of pressure whenever deciding on the model to utilize since different models call for different scenarios and may result to positive results or very severe implications to an organization.

Since the main aim of utilizing outsourcing resources for an organization is to increase the competitiveness of an organization as well as increase its returns, there is a need to determine the most convenient and fruitful model to utilize (Enzine, 2009).

The various factors that may be considered when choosing the model to utilize may include the location of the outsourcing facility, nature of the outsourcing organization, how close the competitiveness between the two parties involved is, the type of skills and experiences as well as the performance history of the party for outsourcing and how reliable the other party is.

There is also a need to consider the costs incurred relative to the returns obtained from outsourcing as compared to utilization of workforce within the organization so as to determine how economical the model selected for outsourcing is (Bain & Company, 2010).

Joint Venture Model

In this model, an organization teams up with a local firm in which both contribute on the required resources. By both firms joining hands, they are optimistic of benefiting from each other.

There are advantages of joint venture model like sharing of ideas which can lead to growth on both parties. There are also shared responsibilities between both parties making management easier for both firms. The local firm is also able to provide high quality products and maintain a good image while the external organization is able to reach its target market easily and at lowered costs hence it increases its revenue.

Many large firms from abroad have utilized this model in many instances and succeeded especially due to the cost reduction factor of exporting products to a given locality and also avoiding establishment of facilities in those locations.

The local organizations are usually able to market products more easily as they usually have a good image and also have already attained a given level of the market share unlike entrance of a new player in the market who would face a lot of challenges before attaining a market share. Therefore, utilization of local organizations is a very effective method of increasing revenue for an organization (Karlsson & Dahlberg, 2003).

On the other side, there are some disadvantages of utilization of this model. Sometimes, an organization may lose a lot of revenue to the local companies as they always have to take a share of the revenue realized and also require cost-sharing as far as sales and marketing as well as management operations are concerned.

These are factors that organizations may be able to evade if they were to venture into the new market by themselves without employment of outsourcing resources. On the other side, some of the large organizations that have employed outsourcing resources have ended up incurring a lot of losses after their deals with local organizations are terminated and they usually encounter problems of compromise of the integrity and authenticity of their products.

Some local companies that operated as outsourcing service providers have ended up establishing their own production programs for products that act as major competitors to the ones provided by the oversees organizations.

On the other hand, most such organizations have lacked the capacity to employ services of other outsourcing organizations within the same location and have ended up losing their entire market share and hence permanently withdrawing from the market. This has serious financial and image implications to an organization (Cobb, 2011).

One company that has been known to utilize this model of joint ventures is the Apple Inc. which usually teams up with the most popular mobile phone dealers and service providers in order to sell its phones in the target markets.

Subsidiary Model/Captive Development Center Offshoring

Organizations may prefer to start up new branches or representative offices in the location of their target market so as to be able to directly interact with their clients instead of involving a third party since the latter has a lot of drawbacks and risks and also reduces on the returns since due to sharing of revenue. This model of outsourcing is the subsidiary model, also referred to as captive development centre offshoring.

Most of the successful organizations that have employed this model in their operations are large technology and IT firms that find it useful to integrate all the available cultures and diversification of ideas, experience and skills that they believe would increase the productivity and sales of the company.

Therefore, by employing a diverse group of workforce in the offices and branches an organization establishes in the location and country of the target market, the organization is able to obtain an increased growth within the market place, enjoy improved competitive advantage and market share, reduces costs of obtaining staff since they obtain staff from the locality of the market place and also are able to penetrate the markets easily as the employees are conversant with the culture, tastes and preferences of the locals (Keri & Carol, 2010).

On the other hand, there are challenges that have faced many companies which tried to utilize this model in the past causing them to fail in their operations and lose a lot of revenues. First, there is an issue of globalization of an organization as it now operates on an international platform.

This usually requires large amounts of capital for start-up and maintenance of international branches of the organization as well as to meet with international requirements and procedures. In other cases, companies have lacked the required skilled labor within the location of the new branches and have been forced to ferry their own staff to such places.

In addition, management of the branches in a manner that ensures they are consistent with the main company in terms of service and product provision is very hard and demanding. This has hence resulted to a lot of problems for organizations resulting to their downfall or recession (Microsourcing, 2010).

Some of the, main applicants of this model in the market include most of the IT companies such as Microsoft and Google.

Service provider offshoring Model

This is one of the most utilized of the outsourcing models. It involves the employment of outsourcing services offered by specialized organizations that specifically deal with offering those services in different fields and also in different capacities, right from small orders to large contracts requiring a lot of labor and skills and also accompanied by large costs in value.

Most of the offshore service providers have a wide range of employees and are usually able to cater for also able to cater for a very wide variety of work and requirements by different organizations. They are usually very reliable as far as provision of quality work within a short time frame is concerned and hence most organizations prefer to employ their services so as to ensure they maintain quality and high performance while on the other side saving on time (Keri & Carol, 2010).

There are different sub-models involved in this model of outsourcing. They have all been utilized by different organizations bearing different results. The main models under this widely used model include the onsite subcontracting and Pure Offshore Projects.

Onsite Subcontracting

In this model, the service providers offer the services through supplying the client organizations with the skilled labor they require which hence works as a part of the staff in that client organization. The client organization is hence able to benefit in many ways from the experts deployed to it.

Due to the nature of work in most of the organizations, there is a need for the skilled experts to be within the organization so as to tackle the required tasks. In most cases, it is impossible for the organization to employ such labor force either due to the fact that the nature of work being undertaken by the experts is not the actual specialization of the organization but rather is a requirement for some procedures or it is a short-term activity.

Most of the organizations around the globe utilize the services of offshore outsourcing service providers who apply onsite subcontracting and have been successful in their operations due to different factors.

The experts deployed to such organizations may help train the employees of the organization on the given tasks and hence add value to them. Such an arrangement is also cheaper than fully employing an expert and hence they save on the expenditure of the organization (Keri & Carol, 2010).

On the other side, some of the organizations that have employed such services have ended up in a lot of trouble due to exposure of the organization’s operations and internal affairs when an employee from a different organization comes in and works as if he is a part of the organization.

A lot of confidential information and materials have been lost or even been accessed by competitors causing organizations to lose their competitive advantage against their competitors.

A popular organization that provides onsite subcontracting delivery of outsourcing services is the Gartner Inc., a leading research and consultancy firm based in the USA but whose services are global and spans across many different organizations and institutions (Bloomberg, 2010).

Pure Offshore Projects

Organizations that have some work to be outsourced that may be tackled remotely without the need for physical presence of the skilled labor usually employ these services and send the required work through use of the available means of conveying the tasks to the service providers, usually through use of the internet or delivery service providers.

Most of the organizations that utilize this model end up in a better position since they can access any experienced and highly skilled labor force from around the world and are hence assured of better quality of their work, a factor that improves their performance and competitive advantage.

On the other hand, services from such providers are cheaper due to competition and the lowered risks and logistics. Hence, this model saves a lot of time and financial resources for the organization (McConnel & David, 2009).

On the other side, some of the organizations that have utilized these services have ended up in problems and lost a lot of revenue and important resources. Due to lack of physical contact with the service providers and the specific experts working for them, organizations may share very valuable and confidential information and then get the experts withdrawing unconditionally from the deal.

Such experts may then use the information they gain from the organizations for their own benefits or even leak it to competitors resulting to lowered competitive advantage. This is usually so since there are no stringently binding agreements between the involved parties and hence the risks involved are very high (Babu, 2008).

Most of the organizations that employ pure offshore projects into their operations are usually small firms with no need for long-term services from the prospective experts who work for them from far away.

These may include research firms which may send their collected data to service providers who in return analyze it and then send it back to the client organization. Such organizations may include companies involved in software development such as producers of Linux and other similar products (Bruyat & Julien, 2000).

Conclusions

There is a need for organizations to consider employment of the different outsourcing facilities available in their exposure so as for them to increase their performance, competitive advantage and the quality of their work while on the other side reducing on their expenditure. Organizations may hence be able to access very valuable labor resources that may be very beneficial to the organization through outsourcing.

There are different models that are available for utilization by organizations. All of them are dependent on the nature of the task and the involved parties and have their own advantages and risks to the organizations. Hence, an organization needs to formulate strategies to determine the best outsourcing model to utilize for their operations (Cobb, 2011).

From all the available outsourcing models, the best to use for most of the organizations except when there are special needs within the organization or the task been tackled is the pure offshore projects model under the Service Provider Offshoring Model.

This is because the model involves few expenses, saves on time and also allows the organization to easily access the services of experts from all over the world irrespective of the location of the organization or the available experts. Even with the risks involved, the model is the best to use since those risks are usually fewer than those involved in the other models while the benefits age much more compared to the rest of the models (Babu, 2008).

References

Babu, M. (2005). Myth: All outsourcing is Offshoring. New York: The Free Press.

Babu, M. (2008). Offshoring IT Services: A Framework for Managing Outsourced Projects. Web.

Bain & Company. (2010). Bain Briefs. Web.

Bloomberg. (2010). The Future of Outsourcing: How it’s transforming whole industries and changing the way we work. Web.

Bruyat, C., & Julien, P. (2000). Defining the field of research in entrepreneurship. New York: Willey.

Burns, P. (2001). Entrepreneurship and Small Business. Palgrave: Macmillan.

Enzine. (2009). Best Outsourcing Model for Start-ups. Web.

Cobb, D. (2011). Choosing the Right Outsourcing Model. Web.

Durkheim, E. (1984). The Division of Labor in Society. New York: The Free Press.

Karlsson, C., & Dahlberg, R. (2003). Entrepreneurship, firm growth and regional development in the new economic geography: Introduction. London: Willey.

Keri, E.P., & Carol, S. (2010). Saunders Strategic Management of Information Systems (4th ed.). London: John Wiley & Sons.

McConnel, C., & David, M. (2009). Contemporary Labor Economics (9th ed.). New York: McGraw-Hill.

Microsourcing. (2010). Benefits of Offshoring. Web.

Rothman, J. (2003). Eleven Steps to Successfully Outsourcing. London: Willey.

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