"Four key advantages of outsourcing" As ABI Inc. moves forward in its business growth and business life cycle outsourcing can improve the bottom line and efficiency. In general terms outsourcing gives a third party service provider
Advantages of Outsourcing
Learning Team B
Shivanand R Koppalkar, Vickie Lander, Lakrisha Miller
Gabriela Torres and Nan XU
University of Phoenix
MGT 578: Strategy Formulation and Implementation
Audrey Ellison
May 22, 2006
MEMO
To: ABI Inc.
From: UOP Consultants, Shivanand Koppalkar, Vickie Lander, Lakisha Miller, Gabriela Torres,
and Nan Xu
Re: "Four key advantages of outsourcing"
As ABI Inc. moves forward in its business growth and business life cycle outsourcing can improve the bottom line and efficiency. In general terms outsourcing gives a third party service provider responsibility for certain processes within the business. The arrays of outsourcing providers are vast. This includes information technology, customer service, market research, business outsourcing, process outsourcing etc. Given the fact that ABI Inc. is a growing company that is not recession proof, we as Learning Team B suggest consideration of outsourcing.
The most obvious benefit of outsourcing is its ability to allow the business to focus on the things that it does best as a business. Additional benefits realized from outsourcing are:
Lower cost: Outsourcing allows for reduced overhead expenses and lower overall costs.
Maximize resources: Sometimes a businesses growth outstrips resources availability. Outsourcing certain processes allows the business to center the available resources on the developmental concepts and growth issues which are of most concern to a growing business.
Better Performance- In some cases a service provider with extensive training and experience in a certain function can improve the way the business performs that function.
Advantages of outsourcing
Business outcomes are now used to measure performance. Outsourcing started out as a way to cut cost but it also gives the business more control over outcomes in a variety of critical areas, the most important being the ability to plan more effectively. While cost cutting is among these key areas, a business has equal levels of controls in reliability and effective implementation of ideas. The UOP consultants have emphasized four key advantages to outsourcing.
Outsourcing Can Save Money
Economies of scale exist and the advantages are a large scale production that results in lower unit (average) costs (cost per unit). This spreads total costs over a greater range of output. There are both internal and external advantages. The internal advantages that occur as a result of the growth of the company are technical, commercial, financial, and managerial and risk bearing.
The external advantages that the company can gain are supply of skill labor, reputation, local knowledge and skills, infrastructure and training facilities. . "Cost cutting powered the initial outsourcing wave, ...
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Outsourcing Can Save Money
Economies of scale exist and the advantages are a large scale production that results in lower unit (average) costs (cost per unit). This spreads total costs over a greater range of output. There are both internal and external advantages. The internal advantages that occur as a result of the growth of the company are technical, commercial, financial, and managerial and risk bearing.
The external advantages that the company can gain are supply of skill labor, reputation, local knowledge and skills, infrastructure and training facilities. . "Cost cutting powered the initial outsourcing wave, and was an early advantage sought by the offshorers-but it is only a fraction of the story. Dell and other US businesses in the computer industry, in financial services and in other key industries are benefiting from access to distinctive skills and high performance from Asia's fast developing economies" (Offshore bonanza, 2006, pp.13-15).
Technology outsourcers (application service providers and managed service providers) have developed excellent economies of scale. Providers become experts at implementation, configuration, customization and operation of LMS. They integrate content only once and can share that technology integration across dozens to hundreds of clients. They offer "standard" customizations, which are then used by many clients and can be implemented in minutes, while customizations in companies running their own LMS's can take months. Some organizations also consider outsourcing because of tax incentives, which is another cost reduction alternative, "Tax incentives offered by many countries around the globe play an important role in attracting significant foreign investments" (Soliman, 2003, pp.735-744).
Outsourcing can help open up new markets areas
Outsourcing can be seen as a strategic maneuver to enter new markets. Outsourcing allows organizations to form alliances with other organizations. The resources and expertise that many of the offshores provide can allow organizations to pursue interest in other area. Outsourcing gives them access to resources that may not be directly available to them and makes moving into new markets more attainable. "Perhaps a less expected result but companies are using offshore as a launch pad into new product markets; Hewlett-Packard has move into digital cameras; Gateway has established leadership in the US plasma TV market; Dell is targeting markets in TV's and cell phones" (Offshore bonanza, 2006, 13-15).
Outsourcing can help develop the Internal Staff.
Outsourcing can provide career development and training to employees in traditional non-core functions. An opportunity they would never have in a self-operated facility. Outsourcing provides focus for the career track of the affected individual. This greatly improves the quality of the people who still work for the company. Outsourcing gives managers more time to focus on strategies that could help the organization grow. When training managers and other executives were asked how they spend time saved in outsourcing, they responded:
. Focus more on strategic planning with line managers.
2. Spend more time on measurements and analytics.
3. Spend more time planning and budgeting.
4. Work with line managers to better understand training needs.
5. Evaluate new technologies and approaches for greater efficiency and effectiveness.
Outsourcing Can Help Accommodate Peak Load
With rapid development of global economy and technology, it becomes possible and available to "instantaneous access to remotely-located, low-cost manufacturing and service skills" (D Bruce 2006).
In the U.S, outsourcing has played an important role and grown at a high speed: "At the current rate of US outsourcing, some 28 emerging countries could account for about half of US manufacturing and a growing percentage of US skilled services within the next decade. Through 2005, some 1.5 million jobs had been outsourced, and this number will likely exceed 4 million by 2008" (D Bruce 2006)
One of the factors that lead to the growth of outsourcing is government regulations which are a major driver of outsourced jobs. "Temporary employment is an option that avoids some of the costs associated with these regulations, but outsourcing to a developing country provides additional savings" (D Bruce 2006).
It is worth mentioning manufacturing outsourcing and acadmic outsourcing. In manufacturing outsourcing, "retail and distribution businesses in particular have an urgent need to outsource so as to reduce manufactured inventories, which account for about 50 percent of U.S. assets" (D Bruce 2006).
In academic outsourcing, a good example is on-line distance learning,
"The University of Phoenix was one of the early developers of on-line learning, and operates worldwide. On-line search engines currently outsource acquisition of data in almost every category of information and learning. Moreover, these sources have begun to vertically integrate facts and data, first into more useful information, and then further into knowledge, from which experience can sometimes even produce elements of wisdom. Teachers currently are the source of most integrated input in the classroom, but outsourced computer and video-based teaching modules will progressively usurp this function, with disruptive effects for the current academic bureaucracy (D Bruce 2006)".
Conclusion
In conclusion, UOP Consultants recommends outsourcing to have a successful outcome as the business continues to grow. Outsourcing is a trend that will continue to grow, especially the outsourcing of technology. Increasingly complex solutions, integration initiatives, budget and staff constraints, and the demand for diverse training resources are among the factors that will fuel the trend. As the question of whether or not to implement outsourcing as an option arises the positive aspects of outsourcing must be outlined. At the same time, option to outsource would reduce the risk factor to the organization and spur future growth.
References
D Bruce Merrifield (2006). Make Outsourcing a Core Competency, Research Technology
Management. Washington: May / June 2006. Vol. 49, Issue. 3; pg. 10, 4 pgs,
Retrieved May 19, 2006 from PROQUEST database.
Offshore bonanza (2006). Strategic Direction, 22(5), pp.13-15. Retrieved May 20, 2006.
Soliman, K., (Dec 2003). A framework for global IS outsourcing by application service
providers. Business Process Management Journal, 9(6), pp.735-744.
Retrieved May 20, 2006
Advantages of Outsourcing 1
