Outsourcing Vs. organizational performance

Introduction

The overhead cost has become one of the critical factors of most of the running organizations in every corner of the world. Amid the overhead cost, administrative cost related to employees has become a significant parameter. As a solution for this issue, most of the companies seek the support of outside service providers by way of semi-finished products, finished products or services which simply defined as “outsourcing”. It is observed that, outsourcing leads to a significant rapprochement between the supplier and the buyer. An important flow of technical and organizational information becomes sharing between these two parties which could not be controlled in some occasions (Bera, 2017).

The impact of outsourcing

The impact of outsourcing for an organization is very important. There may be both pros and cons of outsourcing organizational work to a third party. However, large number of occupations could be created with lot of ease ways with this concept and even the women who possess a quite a low education could find their opportunity through outsourcing. Further there may be cultural mix-up with this concept and unique organizational culture may be harmed up to some extent (Yang, et al., 2012)

Advantages and Disadvantages of Outsourcing

Advantages of Outsourcing: The main advantages of outsourcing are focus on core activities, cost savings, access to experience, improving performance, and flexibility. Further, handing over non-important work of an organization to a third party or in other words, outsourced company, may allow the management of a particular company to focus more on their core business activities and pay much attention on improving the profitability of the company. Also with the outsourcing, companies have the possibility to access to highly qualified personnel, who may not be available to the client organization (Weidenbaum, 2005)

Disadvantages of Outsourcing: Main disadvantages of outsourcing are loss of managerial control over outsourced operations, threat to security and confidentiality, quality problems, hidden costs and reallocation of existing teams. Disadvantage related to the loss of control over the outsourced operations stem from the reason that managing external resources requires special skills which is a combination of the skills of people and process management, contract management, and power negotiation (Tayauova, 2012)

 

  

 Figure I – Pros and cons of Outsourcing

(Source – www. The balance small business.com)

 

Number of studies have revealed that, outsourcing has an impact on the performance of the company based on several factors such as administration and management decision, environmental factors and also financial plus innovation management. Specifically, outsourcing may positively relate to performance for firms pursuing a cost leadership strategy and negatively related to performance for firms that were not. Furthermore, outsourcing may positively relate to performance for innovative differentiators and negatively related to firms that were not pursuing innovative differentiation strategies (Gilley & Rasheed, 2000)

 

References

Bera, S. P., 2017. The concept of outsourcing. IOSR Journal of Computer Engineering (IOSR-JCE), 19(4), pp. 45-47.

Gilley, K. M. & Rasheed, A., 2000. Making More by Doing Less: An Analysis of Outsourcing and its Effects on Firm Performance. ournal of Management, 26(4), pp. 763-790.

Tayauova, G., 2012. Advantages and disadvantages of outsourcing: analysis of outsourcing practices of Kazakhstan banks. Procedia - Social and Behavioral Sciences , 41(5), pp. 188-195.

Weidenbaum, M., 2005. Outsourcing: Pros and cons. Outsourcing: Pros and consB, 48(5), pp. 311-315.

Yang, C., Wacker, J. G. & Sheu, C., 2012. What makes outsourcing effective?. International Journal of Production Research, 50(16), pp. 4462-4476.