Literature Review

Outsourcing

Submitted to:
Ms. Cherry Lyn Encabo

Submitted by:
Joanna Sarahina
Graechelle Fabllar
Meryl Jan Sebomit
Dianna Angela Opada
Louiza May Montecino
ABM-11
 Outsourcing is one of the most effective activities in contemporary business, as many

companies try to use all scientific, and technological innovations to produce a qualified and

competitive product that satisfies the consumer. This situation is very useful for both parties

since each of them can concentrate its resources on developing core competencies and future

directions of activity [ 1 ]. This leads to a significant reduction in expenditure on the production

of the final product since each part works to ensure that it can do its best without additional

effort and without investing in new types of activity.

According to Power et al., outsourcing consists of two words - "out" and "sourcing;"

sourcing refers to "the transfer of work, responsibilities, and decision - making rights to another

person. "Companies must provide work, as others can do it cheaper, faster and better [ 2 ]. Ashley

defined outsourcing as "the allocation of risk and responsibility to another entity for the

performance of a function or service" [ 3 ]. In short, outsourcing can be defined as a process by

which operations or jobs are delegated to a third party, which can do it better, cheaper and

faster. Outsourcing can be divided into internal and external types depending on the level of

control over the performance of an outsourced function. Internal outsourcing is "reallocation of

functions in the business system to save performance control" and external outsourcing is

"delegation of separate or mutually related functions to external outsourcing" [ 4 ].

Outsourcing advantages: The most important advantages of outsourcing are the focus on

core activities, cost savings, access to experience, performance improvement and flexibility. First,

many researchers agree that a company can concentrate on activities that are central to its value
proposition and increase its competitive positioning by handing over non - core activities to a

trusted third party [ 5 ], [ 6 ]. Secondly, outsourcing is generally conducted as cost savings towards

one of the main objectives [ 7 ], [ 8 ], [ 9 ]. Special necessity arises when a certain resource, either

human resources or equipment, is not required full - time, or efforts to obtain the resource

cannot be justified. For example, a medium-sized company occasionally needs technical expertise

and maintenance. Since the cost of hiring and training an engineer who is competent in computer

support is too high, outsourcing this task will benefit the organization. Third, companies can

access highly qualified personnel by outsourcing, which may not be available to the customer

organization [ 10 ] and make full use of the investments, innovations and expertise of the

suppliers [ 11 ].Fourth, the achievement of a performance improvement that the outsourcer

company could offer due to economies of scale is an important reason for outsourcing

consideration. Large - scale functions and opportunities can help save the best available

employee who may not want to work in a less stimulating consumer environment. Moreover, the

level of operational experience with service providers is expected to be higher due to the higher

concentration of employees on tasks compared to internal operations [ 12 ]. Fifth, for many

companies, flexibility is the main reason for outsourcing. The contracts of outsourcers and their

employees ' jobs depend on the degree of flexibility to reflect changing business environments.

Outsourcing Disadvantages: The main disadvantages of outsourcing are a loss of

management control over outsourced operations, a threat to security and confidentiality, quality

issues, hidden costs and the relocation of existing teams. First, the disadvantage associated with

the loss of control over outsourced operations stems from the fact that the management of
external resources requires special skills that combine people's skills and process management,

contract management and power negotiation. Second, nearly every outsourcing contract

contains security and confidentiality terms, but it is always difficult to carry out an audit. In

financial services, information known to investment bankers is kept away from traders, brokers

and other persons who may attempt to misuse such insider information [ 13 ]. Third, the

expectation of better service from the outsourcer than from internal staff is one reason to

outsource. The company may otherwise lose its market position [ 14 ]. Outsourcer must be

selected in this particular way in order to ensure that the quality of the goods and services

produced is not badly affected. Fourth, the company will sign a contract with the outsourcing

company to provide service details. Anything not covered by the contract is the basis for

additional charges to be paid by the company. For example, an analyst can deliberately exclude

costs in favor of one decision, such as selecting one provider against another, selecting in -

sourcing over outsourcing, or staying in a particular business or not [ 15 ]. Fifth, outsourcing is

often associated with firing in the minds of employees. It is also a problem for the top

management team of the organization to decide how the existing employees can be relocated.

Often after outsourcing a part of the original team moves from outsourcing to outsourcing [16],

which causes significant changes. According to Bragg, the sponsorship of such a major change

and its failure can lead to the termination of one or more managers of a company [ 17 ].

In addition, part of their business processes is increasingly outsourced by companies

worldwide. Outsourcing has become one of today's most widely used business practices. It has
advantages and disadvantages, however. If a business is small and has limited resources, it must

outsource. Outsourcing practices, however, can not always ensure that costs are reduced.
 References

[1] Anikin BA, Rudaya IL. Outsourcing and outstaffing: high technologies of management.

Moscow:Infra-M; 2009.

[2] Power MJ, Desouza KC, Bonifazi C. The outsourcing handbook: how to implement a successful

outsourcing process. Kogan Page Limited; 2006.

[3] Ashley E. Outsourcing for dummies. New Jersey: Wiley Publishing; 2008.

[4] Anikin BA, Rudaya IL. Outsourcing and outstaffing: high technologies of management.

Moscow:Infra-M; 2009.

[5] Fan LL, Ramachandran S, Wu YH, Yue ZN. Outsourcing in business; 2006.

[6] Lacity MC, Hirschleim R. Information technology outsourcing: rethinking management

information systems. Oxford Unversity Press; 1998.

[7] Liao KG, Reategui LA. Information technology outsourcing in emerging markets.

Massachusetts institute of technology; 2002.

[8] Lacity MC, Willcocks LP. Global information technology outsourcing: in search of business

advantage. England:John Wiley and Sons Ltd.; 2001

[9] Axelrod CW. Outsourcing information security. Artech House; 2004.

[10] McIvor R. The outsourcing process: startegies for evaluation and management. Cambridge

University Press; 2005.

[11] Axelrod CW. Outsourcing information security. Artech House; 2004.

[12] Allen J, Gabbard D, May C. Outsourcing managed security services. Pittsburgh:Carnegie

Mellon University; 2003.

[13] Jiang J J, Klein G, Tesch D, Chen HG. Closing the user and provider service quality gap.

Communications of the ACM 2003; 46; 72–76.

[14] Anderson B. The hidden costs of IT outsourcing. Computer Aid News and Notes 2001.

[15] Liao KG, Reategui LA. Information technology outsourcing in emerging markets.

Massachusetts Institute of Technology; 2002.

[16] Bragg SM. Outsourcing: a guide to selection the correct business unit. New York: John Wiley

and Sons; 2006.

[17] Eyles J. Qualitative method. In Johnston R, Gregory D, Smith D, editors. The dictionary of

human geography. Oxford: Blackwell; 1989; 380-382.