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Introduction
The world is increasingly becoming competitive. Firms are facing various challenges from various fronts, and it is only the best that can succeed. Competition is one of the leading challenges that firms in the current market have to deal with. New firms are coming into the market with products that are already available. Such new firms have brought about saturation of various products in the market.
Another challenge that firms in the current society have to deal with is the emerging technologies. The emerging technologies have brought a number of new trends that are posing serious challenges to the survival of the firm. It is important that a firm comes up with the best strategy that can help it manage these challenges and come out successful.
Firms must consider the way they can outsmart their competitors. This may not be easy because as they plan to outplay their competitors, the competitors are also considering the best strategy that can help them manage the competitive market.
Quality has been proven to be one of the best tools of managing competition. In order to win customers, a firm needs to ensure that it has the capacity to offer its customers the best value for their money. They have to come out strongly in the market as firms that understand the needs of the market. As such, they have to meet and exceed the expectations of the market (McLaughlin & Aaker 2010, p. 78).
Outsourcing offers firms opportunity to give this quality to the customers. Outsourcing refers to a strategy where a given activity is assigned to a contracted firm which does it on the behalf of the firm. It involves delegating some functions within a firm to another firm in a form of a contract. This is very common in cases where the function needs special knowledge in that particular area.
This may be in the telecommunication sector, in the engineering field, or any area that may require special knowledge in a technical field. This research seeks to gather evidence to support the fact that benefits of outsourcing outweigh its disadvantages.
Outsourcing in the 21st Century
The twenty first century is a very competitive century, and firms have been forced to come up with the best strategy in the market. A firm must give the best performance in the activity assigned. The process of having the best product in the market that is appealing to customers may be very difficult. However, the customers may not understand the difficulties of bringing these quality products in the market.
Despite this fact, a firm has the obligation of constantly bringing products into the market. Outsourcing has come out as the best approach through which a firm can enhance the quality of the products. According to Hui-Ming and Paul (2010, p. 2090), outsourcing allows for individuals with the best capacity to perform certain tasks to perform them to their perfection. An individual cannot be all round perfect.
There are some areas where an individual may require the expertise of another individual regardless of the qualifications held in another area. Similarly, a firm may not have the capacity to perform various tasks in its area of operation.
In order to come up with a product with the best quality, it is important that a firm assigns duties that it is not best in performing, to a contracted firm with the best ability to perform such tasks. In order to understand the importance of outsourcing, it would be important to first look at the reasons for outsourcing
The Main Reasons for Outsourcing
Outsourcing is one of the new trends in the current world. Initially, a firm would be involved in all the activities within the firm. The management would determine all the activities that should be undertaken within the firm. The management would then assign the activities to various departments within the firm to accomplish.
This was working well in those olden days, especially after the Second World War. Firms did not have to struggle looking for the market. The global market was very large, but firms that were doing mass production for various products were very few. There was therefore no serious competition in the market (Hooley 2008, p. 59). The main focus of most firms was to increase their production capacity because of the readily available market.
However, this was changing as the world was getting globalized. Various firms were coming into existence from various corners around the world. With the emerging technologies, the world was fast turning into a global village. Many countries also considered opening up their markets for foreign firms. This brought about serious competition as firms had to convince the market that their products are the best.
Outsourcing was first witnessed in the aviation industry. This industry still remains the leading outsourcing industry in the world. The airlines in many countries across the world realized that most of their employees did not have the capacity to offer quality service to the planes for maintenance purposes.
These airline firms struggled to look for employees with the capacity to take care of the maintenance of the planes. The process of looking for such experienced individuals was not only costly, but also very tiresome. It would take a lot f time getting an individual with enough knowledge in this area, and retaining them within the firm was another problem. This condition was worsened by the fact that such tasks would require a number of individuals to work as a team.
The airline firms therefore, had to come up with an alternative way of maintaining their aircrafts. It is because of this need for external expertise that these firms considered outsourcing as the best strategy that they can manage the problem of aircraft maintenance. They considered assigning individuals who are not direct employees of the firm the duty of maintaining the aircrafts on a regular basis.
This strategy spilled first to other industries in the United States and Europe (Bissoondoyal 2006, p. 92). Various multinational corporations realized that outsourcing offered the best strategy to manage internal operations. The strategy offloads some of the tasks that would have worried the firm to other firms that have specialty in dealing with such activities.
It also allowed some firms to lay off parts of its workforce as the need to have some departments was eliminated. Firms came to realize that they did not have to be perfect in all the stages of production in order to produce perfect products. They only had to select tasks that they had the best capacity to perform in, and assign other tasks to other outsourced firms.
In the current society, various firms have outsourced various activities to improve their quality of products. However, Outsourcing comes with a number of disadvantages. In order to determine if the benefits of outsourcing outweigh its advantages, it would be important to look at both (Montiel 2011, p. 119). The following are some of the disadvantages of outsourcing
Disadvantages of Outsourcing
It is true that firms have considered outsourcing as a way of improving their operations. However, this comes at a cost. Firms may need to sacrifice a number of factors when outsourcing some of its activities. As Pellicelli (2010, p. 280) observes, outsourcing is not as simple as it may appear to be.
There are a number of factors that a firm must be ready to forego when outsourcing. This puts such a firm at risk, especially in the current competitive market. The following are some of the disadvantages of outsourcing.
Reduced Control of the Firm’s Activities
The current competitive market requires the management of a firm to be on top of every operational activity in the firm. It requires a firm to develop mechanisms that would enable it operate all the activities within the desired time. This control is always reduced when a firm decides to outsource the services of another firm.
The individuals who will be performing these tasks within the firm are not employees of the outsourcing firm. The management of the outsourcing firm therefore, does not have direct powers to direct them on how to carry out their activities. This may be frustrating to the management, especially when there is some form of urgency in the task.
Exposure of the Firm to Competitors
The level of competition in the market today requires firms to hide most of their strategies to the competitors. Large firms like Apple have been very successful in the market because they have hidden some of their strategies in the market. They keep their competitors guessing how they are going to approach some issues in the market.
When the operational activities are left open for the competitors, a firm ends up losing its competitive advantage in the market (Prasanna & Lorin 2009, p. 18). Outsourcing increases chances for a rival firm to access classified information about the firm.
Different Approach to Handling Activities
Most successful firms always develop conventional ways of approaching various activities. This way, it becomes easier for the management to monitor the progress within various departments. The employees are also able to determine what is expected of them in the firm. When a firm is outsourced to perform certain tasks within the firm, the employees of the outsourced firm may come up with their own approaches of handling various activities that may be strange to the firm. This may complicate the need for the two sets of employees to work as a team. This may reduce the overall efficiency of the firm.
Benefits of Outsourcing
In the current dynamic world, no firm can claim to have the capacity to perform various tasks that it may be faced with. It would be prudent for a firm to consider assigning some of its duties to other firms that have the best capacity to perform these tasks. According to Richard and Joseph (2007, p. 12), outsourcing has massive benefits that can enable a firm to achieve the best results in the market. The benefits so far outweigh the disadvantages that come with outsourcing. The following are some of the benefits of outsourcing.
Increasing of the Operations Efficiency
Outsourcing is one of the best ways of increasing operations efficiency. It is common to have cases where a firm lacks proper expertise to undertake certain activities. This is very common when dealing with the emerging technologies. It may take a very long time for a firm to train its employees on certain activities within the industry. Outsourcing therefore comes out strongly as the best strategy that allows the firm to operate with the highest efficiency level even if it lacks expertise in some fields.
Employees who have knowledge and experience will be retained in their departments to increase their efficiency. Those tasks that the firm lacks proper expertise will be assigned to other firms with enough capacity to deliver good results. This way, the operations of the firm will be very efficient.
Increasing Time to Focus in Other Core Activities
According to Steven (2007, p. 272), it is always a strenuous and time consuming process trying to undertake a task that one has limited knowledge in. Such an individual will be performing two tasks at a time. The first task will be learning how to perform the task, while purporting to perform the task. This takes a lot of time that would have been used to undertake other activities.
When such activities are outsourced, it allows the firm more time to focus on activities that it can perform best. This way, the management, and the employees will be left with ample time to focus on other core activities of the firm.
Improving Management of Information
Information is one of the key components of a firm that always dictates success or failure in the market. A firm that is able to develop an information flow has the capacity to succeed, unlike another with disrupted information strategy. Information management is always very important. Outsourcing enhances information flow.
When a firm outsources another firm, it would mean that the firm will have a reduced number of employees. Coordinating the reduced number of employees is much easier. The management will use the leadership of the outsourced firm to ensure that its employees work within its expectations.
Reduced Cost of Operations
Firms are currently fighting to reduce costs of operations. Customers are demanding more for a lesser cost. The suppliers are demanding more money for lesser suppliers they deliver, citing increased cost of operations. A firm is pressed between these two forces.
It has to find a way of meeting the needs of the two forces. Outsourcing offers firms this opportunity. When a firm outsources another to perform certain tasks, this would mean that the firm will not need to hire individuals in these departments. This reduces the cost of labor for the firm.
Reduced Risks
The process of outsourcing reduces the risks of errors in performing certain activities. This is very common in the aviation industry. When these tasks are assigned to experienced individuals, chances that the activity will be done in a faulty way are minimized. This reduces risks that would be met if the activities were done by inexperienced employees within the firm.
Quick Implementation of New Technologies
The emerging technologies are very important in the modern world. It is important that a firm ensures that it has the capacity to manage the emerging technologies. Outsourcing other firms in various departments within the organization helps in quickening the implementation of new technologies.
To implement new technologies as quick as may be desired, there is always need to ensure that there are individuals who have an understanding of such technologies (Viardot 2004, p. 28). A firm will only need to go for a firm with experience and knowledge of the new technologies. Outsourcing their services will enable the outsourcing firm to implement new technologies at a faster rate.
Compliance to Security
In most of the industries, there are some rules and regulations set by relevant authorities to protect the public. In the aviation sector, there are safety and security rules set up by various aviation bodies. The same case applies to various other departments. Some sensitive industries like the aviation industry would require individuals with a deep understanding of the requirements put forth by the regulators.
When a firm outsources such sensitive tasks to other firms, it makes it easy for the firm to comply with the security and safety rules. This would eliminate any possible cases of litigation.
Staffing Flexibility
One of the biggest tasks that human resource department has to handle is the flexibility of the staff. The staff of any given organization must be flexible. It must be able to approach the emerging trends in the market and be able to come out successful. However, this is not very easy because of specialization that comes with division of labor.
When an individual is assigned a specific task, it would be difficult to make them perform other activities that are different from their current tasks. However, there must be flexibility of the workforce to enable the firm withstand the emerging trends.
Outsourcing is the best way to enhance staff flexibility. A firm will only need to hire individuals with understanding of the emerging trends as and when needed. Employees will be given time to develop understanding of these new trends and master them, before they can start performing such tasks.
Development of the Internal Staff
It is import to develop the internal workforce. Development of the staff can come in various approaches. One of the most common ways of developing the workforce is through in-service learning. In this strategy, employees’ capacity is improved while they are at work. Outsourcing is very vital in this strategy.
The management will outsource a firm with the desired skills in a particular sector. The management will then select the workforce that should learn the desired strategy and assign them to work alongside the outsourced firms. The employees would be expected to learn how to handle certain tasks by getting involved in doing them (Tejaswini & Rajiv 2010, p. 320).
The outsourced firm will not only be helping the firm in performing that particular activity, but also in teaching and developing the local staff. The firm will therefore develop a strong workforce that has the capacity to handle various activities within the firm.
Conclusion
The world is increasingly becoming competitive. Firms are facing various challenges in the market that requires them to develop appropriate mechanism to overcome them. In the current world, it is important that the management understands the new forces that are relevant within the industry and acts upon them well in time.
Outsourcing is one of the best strategies that a firm can achieve this. It has been clearly demonstrated that the benefits of outsourcing outweighs its disadvantages.
List of References
Bissoondoyal, U 2006, Total quality management: a practical approach, New Age International, London.
Hooley, G 2008, Marketing Strategy and Competitive Positioning, FT Prentice Hall, Harlow.
Hui-Ming, W & Paul, W 2010, Modelling of outsourcing decisions in global supply chains: An empirical study on supplier management performance with different outsourcing strategies, International Journal of Production Research, vol. 48, no. 7, pp. 2081–2094.
McLaughlin, D & Aaker, D 2010, Strategic market management: global perspective, Wiley, Chichester.
Montiel, P 2011, Macroeconomics in emerging markets, Cambridge University Press, Cambridge.
Pellicelli, M 2010, Outsourcing strategies. How to formalize and negotiate the outsourcing contract, Department of Business Administration “Riccardo Argenziano, pp. 276-286.
Prasanna, B & Lorin, M 2009, How Offshoring Affects IT Workers, Contributed Articles, vol. 10, no. 11, pp. 407-426.
Richard, W & Joseph, P 2007, The Impact of Outsourcing on Firm Value: New Insights, SAM Advanced Management Journal Spring, pp. 1-12
Steven, T 2007, The Innovative Organization: Creating Value through Outsourcing, California Management Review, vol. 50, no. 1, 261-277.
Tejaswini, H & Rajiv, K 2010, Offshore Outsourcing: Risks, Challenges, and Potential Solutions, Information Systems Management, vol. 26, no. 1, pp. 312–326.
Viardot, E 2004, Successful Marketing Strategy for High-Tech Firms, Artech House, Boston.
Vishanth, W & Zahir, I 2010, A value and risk analysis of offshore outsourcing business models: an exploratory study, International Journal of Production Research, vol. 48, no. 2, pp. 613–634.
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