OUSOURCNG BUSINESS FUNCTIONS

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ADVANTAGES & DISADVANTAGES OF OUTSOURCING BUSINESS

FUNCTIONS

1. INTRODUCTION

Every business is comprised of some core functions which are in line with the core

objectives of the business along with some non-core, ancillary or support functions

which help to support the core functions of the business.

To define it formally, outsourcing is a practice employed by various organizations to

reduce costs by delegating parts of their work to outside vendors/suppliers rather than

getting them done by the organization itself. Organizations primarily outsource their

businesses to achieve cost reduction, which include non-centric or those expenses

which are not core in nature and in order to avoid higher tax rates, greater power bills,

rigid government legislations and higher manpower or production costs.

2. PROJECT OBJECTIVE

It is a business research project aimed at appreciating the advantages and

disadvantages of outsourcing of business functions.

3. PROJECT SCOPE

The scope of this research project is to examine the advantages and disadvantages of

outsourcing in the light of existing literature and weigh them over each other to form

an evidence based opinion about its merits and demerits.

4. LITERATURE REVIEW

Outsourcing has a long history to be traced to. However, it is very recent that

outsourcing has become a widely practiced business modality. With the fast era we

now live in, it is being widely practiced across various platforms, countries and

borders and has become a very recognized business entity.

To have a fair idea of what outsourcing is, we need to have a look on the various

terms having similar meanings. Outsourcing activities are done by an external

supplier to undertake transfer of activities and assets from a company which had been

undertaken in-house previously. Out tasking, also referred to as subcontracting,

implies hiring of an outside service provider for time being to supplement resources

e.g. hosting of an official lunch or dinner by a catering company. Consulting gives an

input to organizations by rendering advice about how an activity or a business process

should be done, whereas outsourcing practically does it. Literature regarding

Business Process Outsourcing (BPO) presents an overlapping and vague

relationship between the two. Contingent workers are people leased to an

organization by a Human Resource (HR) service provider.

Like any other practice, outsourcing has its own set of merits and demerits. Here we

consider some of them in light of the existing literature.

There are a lot of advantages associated with outsourcing. After a thorough literature

search, the most common ones found are enumerated and explained here :

• Focus on Core Competencies

By averting undue attention which has to be paid to the support functions,

organizations get a chance to focus on their core competencies and to develop

and evolve them to an optimal level. Core competencies are the fundamental

pillars upon which the foundations of an organization or a business rest.

Therefore, a focus on the core competencies is a requirement which is of

utmost importance to them. Kremic et al. (2006) have very rightly described

that that many of the businesses in present day are contemplating to outsource

even ignoring the cost factor, just to maintain their focus on their core

competencies.

• Cost reduction

Since outsourcing involves a delegation of some business functions which are

otherwise very costly due to multiple factors like higher labor costs, electricity

and other utility bills etc. Outsourcing some functions to a more cost-effective

market results in achievement of significant cost control which may otherwise

be impossible or nearly impossible. Cost control and cost reduction plays an

integral part in the smooth and effective operations of any business and is the

top most priority of the management. For many centuries, the focus of

businesses was confined to achieve the best possible cost reduction. Cost

reduction is such an obvious advantage/ benefit of outsourcing that it has been

declared to be the driving or motivating force behind outsourcing as

maintained by Sharma & Loh (2009)

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ADVANTAGES & DISADVANTAGES OF OUTSOURCING BUSINESS FUNCTIONS 1. INTRODUCTION Every business is comprised of some core functions which are in line with the core objectives of the business along with some non-core, ancillary or support functions which help to support the core functions of the business. To define it formally, outsourcing is a practice employed by various organizations to reduce costs by delegating parts of their work to outside vendors/suppliers rather than getting them done by the organization itself. Organizations primarily outsource their businesses to achieve cost reduction, which include non-centric or those expenses which are not core in nature and in order to avoid higher tax rates, greater power bills, rigid government legislations and higher manpower or production costs. 2. PROJECT OBJECTIVE It is a business research project aimed at appreciating the advantages and disadvantages of outsourcing of business functions. 3. PROJECT SCOPE The scope of this research project is to examine the advantages and disadvantages of outsourcing in the light of existing literature and weigh them over each other to form an evidence based opinion about its merits and demerits. 4. LITERATURE REVIEW Outsourcing has a long history to be traced to. However, it is very recent that outsourcing has become a widely practiced business modality. With the fast era we now live in, it is being widely practiced across various platforms, countries and borders and has become a very reco ...
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