Outsourcing

Outsourcing

Outsourcing is the process that “involves the transfer of the management and/or day-to-day execution of an entire business function to an external service provider.” This external service provider could be another company in or out of the United States. In 2004, the issue of outsourcing was brought to the forefront of political discourse due to then presidential candidate John Kerry’s remarks, criticizing U.S. firms that outsource jobs abroad or that incorporate overseas in tax havens to avoid paying their fair share of U.S. taxes. Some of the advantages of outsourcing are:

• Cost savings. The lowering of the overall cost of the service to the business. This will involve reducing the scope, defining quality levels, re-pricing, re-negotiation, cost re-structuring.
• Increased efficiency. An outside provider's cost structure and economy of scale can give an important competitive advantage.
• Reduced labor costs. Outsourcing allows for more cost-effective hiring for short-term or peripheral projects.
• Operational expertise. Access to operational best practice that would be too difficult or time consuming to develop in-house.
• Catalyst for change. An organization can use an outsourcing agreement as a catalyst for major step change that can not be achieved alone.
• Enhanced capacity for innovation. Companies increasingly use external knowledge service providers to supplement limited in-house capacity for product innovation.

Outsourcing, however, does have many drawbacks, which include:

• Loss of managerial control. Outsourcing means it will be harder to manage a service provider than it is to manage one’s own company.
• Security threat. If a company is outsourcing sensitive material, for example payroll records, than it is at a greater risk to be compromised.
• Hidden costs. Anything not covered in the contract will be the basis for additional charges.
• Quality problems. The outsourcing company does not share the same philosophy as the business, creating a reduction in quality.
• Bad publicity. Outsourcing means a lot of different things to different people.

In summary, many businesses promote outsourcing due to an ability to gain access to high-quality services at a cost-effective price.

In terms of its relationship to education, we must be aware that outsourcing and offshoring are taking place and must be prepared to act accordingly. Many colleges and universities are now offering courses that deal with the impact of outsourcing, especially in the technical fields. On the other hand, one could argue that education is adding to the problem by outsourcing their products. The growth of online schooling bears witness to that fact.


Resources

http://www.allbusiness.com/human-resources/workforce-management-hiring/1084-1.html

http://www.softwareprojects.org/disadvantages-outsourcing.htm

-Roberto Lugo