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Outsourcing is a very controversial topic with both positive and negative aspects. Before approaching to an answer of “Yes” or “No” to the above statement, I would like to keep an open mind and be able to see both sides of the situation in order to have an accurate view of the issue. According to wikipedia. com, outsourcing is subcontracting a process, such as product design or manufacturing, to a third-party company.
In his book, “Crafting & Executing Strategy”, Arthur and his co-authors outlines that outsourcing involves a conscious decision to abandon or forgo attempts to perform certain value chain activities internally and instead to farm them out to outside specialists and strategic allies.
Outsourcing has become one of the fastest growing trends in the business world. There are many reasons that a company would elect to use outsourcing. Among them is the fact that it provides an almost immediate opportunity for savings resulted from outsides that can often perform certain activities better or cheaper.
Outsourcing allows a company to focus its entire energies on those activities at the center of its core competencies and that are the most critical to its competitive and financial success. In order to achieve deemed advantageous of outsourcing, following criterion have been discussed in the chapter 6 – Supplementing the Chosen Competitive Strategy of the book “Crafting & Executing Strategy”: 1. An activity can be performed better or more cheaply by outside specialists 2.
The activity is not crucial to the company’s ability to achieve sustainable competitive advantage and won’t hollow out its core competencies capabilities, or technical know-how 3.
It reduce the company’s risk exposure to changing technology and/or changing buyer preference 4. It improves a company’s ability to innovate 5. It streamlines company operations in ways that improve organizational flexibility and cuts the time it takes to get new products into the marketplace 6. It allows a company to assemble diverse kinds of expertise speedily and efficiently 7.
It allows a company to concentrate on its core business, leverage its key resource, and do even better what it already does best While it’s possible for a company to outsource virtually any kind of service, several were especially common in the e-commerce arena where positive impacts have been demonstrated. Among them were IT management; logistics and order fulfillment; Internet video production, management, and distribution; customer relationship management; and Web site development and hosting.
The ease and cost efficiency of handling different aspects of e-commerce in-house was easier and more cost-effective for some companies than it was for others, so companies outsourced services differently. Many companies looked to outside parties to handle online order fulfillment (filling and shipping orders they received via the Internet) instead of building or renting their own warehouse operations, which required special expertise for e-commerce. This freed them to focus on core competencies like creating new products and services, and marketing.
When companies rely on third-party fulfillment providers, they normally manage the front end of e-commerce (the content and appearance of their Web site) and leave the rest to the third party. In other words, the third party receives orders from customers, manages the inventory of available products in its warehouse, and coordinates shipping. Some also provide value-added extras like customer service. Another example of outsourcing involves application service providers (ASPs), third parties who manage business applications for companies so they can focus more on their core business.
These applications often involve things like payroll, billing, and customer service. The software systems offered by the ASP are sometimes Web-based, so that client companies do not have to host the software and devote resources to maintaining and updating them. Although ASPs held the potential to simplify things for client companies, they also moved long-held control over internal systems and data to outside parties, which made some organizations uncomfortable.
The hierarchal structure of business is another area that has the potential to be impacted by outsourcing. If an aspect of a business, such as Human Resources, is controlled by an outside group, human resources are thus removed from an organization and its formal structure. An advantage to this would be the prospect of expanding into locations that have not yet been outsourced. At the same time, the departmentalization of the structure would most likely need to be altered to meet with the changes resulting from the outsourcing.
Above mentioned outsourcing activities are considered as the best practice of one core concept introduced in the book “Crafting ; Executing Strategy”: A company should generally not perform any value chain activity internally that can be performed more efficiently or effectively by outsiders – the chief exception is when a particular activity is strategically crucial and internal control over that activity is deemed essential.
Hence, above all seems to show the strong support to “view outsourcing as a means whereby a company can enhance its competitiveness and thereby better protect the jobs of the remaining employees. ” However, before we come to a conclusion let’s take a step further to have a look at some statistics and what some economists say about outsourcing.
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