Which of the following is not a strategic issue in making the outsourcing decision?
Outsourcing has become an increasingly popular option for businesses looking to reduce costs and improve efficiency. However, making the right outsourcing decision can be complex and challenging. In this article, we will explore some of the key strategic issues that businesses need to consider when making the outsourcing decision. We will also look at some real-life examples of how these issues have been addressed by successful businesses.
1. Cost Savings
One of the primary reasons that businesses turn to outsourcing is to reduce costs. By outsourcing certain tasks to a third party, businesses can save on labor, equipment, and other expenses associated with performing those tasks in-house. However, cost savings should not be the sole reason for outsourcing. In fact, some businesses have found that outsourcing can actually end up being more expensive than performing certain tasks in-house.
For example, a company that outsources its IT support to a third party may end up paying more for that support than it would if it performed the work in-house. This is because the third party provider will need to cover their own costs, such as salaries and equipment, which will be reflected in the prices they charge the company.
Additionally, outsourcing can also come with hidden costs, such as training and onboarding new employees or investing in specialized software or equipment. Businesses need to carefully consider these additional costs when making the outsourcing decision.
2. Control and Quality
When a business outsources a task to a third party provider, it gives up some control over how that task is performed. This can be difficult for businesses that are used to having complete control over every aspect of their operations. However, this lack of control can also be an advantage, as the third party provider may have specialized expertise and experience in performing certain tasks.
However, businesses need to be careful when outsourcing to ensure that they maintain quality control over the work being performed by the third party provider. This can be done through a variety of means, such as setting clear expectations for performance, monitoring progress regularly, and providing regular feedback to the provider.
3. Communication and Cultural Differences
Outsourcing can also come with communication and cultural differences that businesses need to be aware of. For example, if a business outsources to a provider in another country, there may be language barriers or cultural differences that can make it difficult for the two parties to communicate effectively.
To overcome these challenges, businesses need to invest in effective communication tools, such as video conferencing and instant messaging, and provide regular training on cultural awareness to both their own employees and the employees of the third party provider. This will help to ensure that everyone is on the same page and working towards the same goals.
4. Intellectual Property Rights
When a business outsources a task to a third party provider, it may be putting its intellectual property (IP) at risk. For example, if the provider is given access to sensitive data or proprietary information, there is a risk that this information could be misused or stolen.
To protect their IP, businesses need to carefully vet any potential providers and ensure that they have appropriate safeguards in place to prevent IP theft or misuse. This can include requiring the provider to sign non-disclosure agreements (NDAs) and implementing strict security protocols for protecting sensitive data.
5. Legal and Regulatory Issues
There are also legal and regulatory issues that businesses need to consider when making the outsourcing decision. For example, if a business is required by law to perform certain tasks in-house, it may not be able to outsource those tasks without violating those laws.
Additionally, businesses need to be aware of any tax or legal implications associated with outsourcing to providers in other countries. For example, there may be taxes or tariffs that could increase the cost of outsourcing, or there may be legal requirements that need to be met before a business can outsource to a particular provider.
Real-Life Examples
To illustrate these strategic issues, let’s look at some real-life examples of how businesses have approached the outsourcing decision.
IBM and Wipro
IBM is one company that has had great success with outsourcing certain tasks to third party providers. For example, IBM outsources a significant portion of its IT services to a provider called Wipro. This allows IBM to focus on its core business while Wipro handles the day-to-day operations of the IT department.
IBM has been able to achieve cost savings through this arrangement, as well as access to specialized expertise and experience that it may not have had in-house. Additionally, IBM has been able to maintain quality control over the work being performed by Wipro through regular monitoring and feedback.
Microsoft and Accenture
Microsoft is another company that has successfully outsourced certain tasks to third party providers. For example, Microsoft outsources its customer support operations to a provider called Accenture. This allows Microsoft to focus on its core business while Accenture handles the day-to-day operations of the customer support department.
Through this arrangement, Microsoft has been able to achieve cost savings and access to specialized expertise and experience that it may not have had in-house. Additionally, Microsoft has been able to maintain quality control over the work being performed by Accenture through regular monitoring and feedback.
Netflix and Virtusa Polaris
Netflix is a company that has struggled with outsourcing certain tasks in the past. For example, in 2014, Netflix outsourced its IT operations to a provider called Virtusa Polaris. However, this arrangement was not successful, as Netflix found that it was unable to maintain quality control over the work being performed by the provider.
Netflix eventually brought its IT operations back in-house, citing a lack of communication and cultural differences between the two parties as the main reason for this decision. This experience serves as a cautionary tale for businesses looking to outsource certain tasks, highlighting the importance of effective communication and cultural awareness when working with third party providers.
Summary
In conclusion, there are several strategic issues that businesses need to consider when making the outsourcing decision. These include cost savings, control and quality, communication and cultural differences, intellectual property rights, and legal and regulatory issues. By carefully considering these issues and taking steps to address any potential challenges, businesses can achieve great success with outsourcing certain tasks to third party providers.