Advantages Of Outsourcing

“The important thing about outsourcing or global sourcing is that it becomes a very powerful tool to leverage talent, improve productivity and reduce work cycles,” Azim Premji. This article will discuss the benefits and reasons for a company to outsource, backsource, and offshore a business process or service. It will also briefly discuss disadvantages of each category and outline how to avoid and mitigate failures.

Outsourcing is a business practice that could make or break the company. It refers to the way in which businesses delegate their services or processes to an outside company. By doing this a company could focus on their core competencies and the outsourced process or service could be completed at a lower cost to the company. Outsourced

The contractual agreement between the companies was vague and IBM was not willing to perform all tasks that were originally completed at JP Morgan Chase, as they were not specifically outlined in their bid package. Outsourcing the IT department took months upon months of preparation. In its simplest terms, a business case has to be put together, processes outlined and cleaned up for transfer, and bonus packages for retention during the move have to be approved and put together to prevent key players from leaving. As you can imagine the initial outsourcing can be costly depending on the size of the service or process moving. Backsourcing is no different, if not more costly, “if you decide to insource, you have to do that all over again in reverse, and it costs you twice as much,” says Trestle Group’s Schonenbach (Overby,

The Journal of World Business article states there are disintegration-related advantages, location-specific advantages and externalization advantages (Kedia & Mukherjee, 2009). Disintegration-related advantages relate to the advantages that allow a company to focus on its core competencies by offshoring and modularity advantages. They allow the company to focus on innovation. They can do that by reallocating resources which can be benefitted by better quality of services and products. Offshoring a part of a company’s value chain can lead to modularity benefits of greater flexibility, speed and cost reductions. With a piece of the value chain gone a company can respond quicker to a threat or new idea and with better flexibility. Location-specific resourcing advantages are country and human capital related. They include: infrastructure, government policy, labor, knowledge and time (Kedia & Mukherjee, 2009). A country overseas could be better equipped with the infrastructure to complete a piece of the value chain for a company in the US. Government policy may also be in better favor to the business process or service, as well as lower cost labor, more knowledge and time management. Externalization advantages are advantages related to relationship capital, co-specialization, and mutual organizational learner (Kedia & Mukherjee,