NV4607 Interactive Learning Skills and Communication Assignment Sample

Introduction

Outsourcing is a business method which is usually followed by organisations to decrease operational cost. In other words, outsourcing can be defined as a process of contracting a particular function or business or any activity of business to a specialised agency.

The benefits and motivation of outsourcing will be signified in this particular report. Detailed information about the risks that can be posed for outsourcing and the way of managing those risks will also be specified in this case. Moreover, diversified aspects of outsourcing are also discussed in this report along with examples of some influential organisations.

Concept  of outsourcing

Outsourcing has turned to be a trend because it leverages advantages that range from low-cost labour, product quality improvement and service innovation (Deloitte, 2022).http://NV4607 Interactive Learning Skills and Communication Assignment Sample When outsourcing crosses the national boundaries and gets managed by the companies located in different other countries, then it can be termed as offshoring.

Outsourcing can be considered as the business practice associated with hiring a particular party(Kayar and Bulur, 2019).http://NV4607 Interactive Learning Skills and Communication Assignment Sample The party needs to be outside the company in order to perform some services or create goods that are being performed previously in house by the employees or staff of the company.

For example, the majority of the production in Apple is outsourced to Foxconn, which helps in assembling many products such as the iPhone (Forbes, 2022).http://NV4607 Interactive Learning Skills and Communication Assignment Sample Google started its business as a simple search engine. In accordance to the study of Dornet al.

(2018), firms are likely to be experiencing a higher rate of growthof outsourcing in these coming years because it has been found that in 1950 only 2% are employed by business service firms which is increased to 8% by 2015.

Motivations for outsourcing

One of the biggest motivations for outsourcing by a company is to save a considerable amount of financial resources. There are many reasons behind the efforts of the company to make a reduction in its operating costs.

Problems can arise with suppliers or increasing cost of materials and business organisations that require a reduction in its expenses to maintain competitiveness in the market. Another reason might be the requirement of downsizing due to the merger and acquisition. A company might have the requirement of an outsourcing division in order to proceed to make the experts free who are needed for the emergency projects.

Expanding a business expansions often require additional duties for the existing employees. Therefore, outsourcing can be considered as a good solution to make some employees freefor new kinds of duties (Ishizaka et al. 2019).http://NV4607 Interactive Learning Skills and Communication Assignment Sample Microsoft uses outsourcing as a manner of freeing up the capital in order to invest the capital in other specific areas (IT Exchange, 2022).

The company may need to seek ways for making improvements in its efficiency by implementing labour force. This may be in the production where great expertise is there outside the organisation.

For example, an organisation dealing in laptops might gain more profitability by outsourcing electronic components to the manufacturer of original equipment rather than trying to manufacture in house.

A company facing the requirement of compliance may make a decision of outsourcing the team of compliance instead of putting stress on its existing workers (Yuan et al. 2020). http://NV4607 Interactive Learning Skills and Communication Assignment SampleIt requires an overview, as handling this responsibility may pose risk for a specific third party that can be outweighed through experience gap and capability achieved by the company to satisfy the demands of compliance.

Benefits of outsourcing

Outsourcing business forms mainly deals with multiple businesses simultaneously. This firm mainly helps in running operations day out, day in and working on specific areas of the business process.

Division of labour mainly makes a business organisation focus on enhancing its capability. US has received some benefits from outsourcing as components manufactured from outsourcing have been incorporated into the large products in the region. It has resulted in an increasing demand for jobs of high skill.

The ultimate result is that the products have been produced competitively and has been delivered as the consumer products of the US at extremely affordable prices. It ultimately resulted in boosting the economies of foreign countries along with the US (Pankowska, 2019).http://NV4607 Interactive Learning Skills and Communication Assignment Sample

Figure 1: Factors of outsourcing

(Source: Raeissiet al. 2018)

Apple can be taken as an example for showing the benefits of outsourcing. Apple mainly outsources the production of iPhone to hundreds of different business firms and one of them is Foxconn, which is involved in manufacturing the final product. Apple made a contribution of 50% within the revenue of Foxconn in the previous years.

In the year 2015, Foxconn has received 64 billion US dollars from Apple (Forbes, 2022).http://NV4607 Interactive Learning Skills and Communication Assignment Sample As a component of the supply chain, Apple outsources different types of components from Samsung such as mobile DRAM and the flash drive (Forbes, 2022).http://NV4607 Interactive Learning Skills and Communication Assignment Sample

This has provided success to Apple and it has made it one of the influential organisations of technology all over the world. Instead of making efforts on developing new components, Apple has outsourced the important components, which can focus on the core competencies.

Figure 2: Outsourcing of IT budget

(Source: Dautovic, 2022)

According to Dautovic (2022), outsourcing has faced a major growth in the past few years where around 54% of all the organisations utilised third-party team-support in order to connect with customers. Even, Dautovic (2022) has also mentioned that globally, $75.2 billion are being spent on outsourcing during 2021.

The figure above reflects the growth pf outsourcing and the global market of IT outsourcing is further expected to grow by $98 billion within 2020 to 2024, with an CAGR of 5% (Dautovic, 2022).

Figure 3: Assembling Apple products by Foxconn

(Source: Forbes, 2022)

Software outsourcing can be considered the most trending thing done by business organisations nowadays. Along with outsourcing software, technical support is also outsourced. For example, if a person faces issues with the laptop, then the support services sought by that individual are outsourced.

Microsoft can be considered as a famous example, as it outsources to the business organisations of influential categories such as Wipro and Tata (IT Exchange, 2022).http://NV4607 Interactive Learning Skills and Communication Assignment Sample When a business firm proceeds with outsourcing its production. The other business firm will attract many customers in order to get benefits from economies of scale in that particular field.

For example, a UK based Bank named Lloyd Bank agreed on a 7 year deal with IBM to outsource their information technology area. Banks cannot be considered under the sector of technology; therefore, the scale of the bank is limited to its own process of business (CIODIVE, 2022). http://NV4607 Interactive Learning Skills and Communication Assignment SampleBy contrast, the global community is served by IBM with sales of over 77 billion dollars (CIODIVE, 2022).http://NV4607 Interactive Learning Skills and Communication Assignment Sample

Risks of outsourcing

There are some risks associated with outsourcing which has been given below in detail:

Lack in control

One of the biggest risks associated with outsourcing is the inability in controlling. When an operation of business that is previously managed by the team in-house is outsourced to the external agency then ittakes away control of the company over it. If the process is mis-managed by the provider of service then it can affect the quality of service, which has been outsourced.

The level of control is dependent upon the geographic distance of the vendor. A large distance can make it difficult for in-person meetings and inspections leaving the company to be dependent on the virtual services of communication (Kaur et al.2019). http://NV4607 Interactive Learning Skills and Communication Assignment SampleThis can be challenging for monitoring productivity and performance. It also makes it difficult to collaborate with offshore vendors.

Communication barrier

Different tools of video conferencing tools are utilised by the business firm. As a result, it is becomes complex to manage communication over the phone and video calls face-to-face communication, especially in the outsourcing of offshore category.

With the passing time, even if work proceeds around it, in future there will be issues of scheduling. For example, if a company hires a remote team from the Philippines for IT outsourcing then the company need to clock in early for accommodating their work hours or they will need to work at midnight to stay present during the working hours (Patel et al. 2019).http://NV4607 Interactive Learning Skills and Communication Assignment Sample

Unforeseen and hidden costs

The main reason for outsourcing is attaining competitive advantage with the help of profitability and cost savings. If it results in any kind of hidden cost then there is a risk.

Before outsourcing a specific service, it is important to compare the pricing of vendors with the current development cost of in house along with the other additional expenses. This provides a rough idea about the charges of the vendor (Dahlströmet al. 2018).http://NV4607 Interactive Learning Skills and Communication Assignment Sample

Privacy and security concerns

When the business organisation is outsourcing to any other service organisation then the business assets are completely or partially exposed to an outsider. This is the reason why a business organisation needs to pay attention towards data protection intellectual property and privacy.

It involves trade secrets, copyrights and patents. If the hiring is done from another country then the concern of leaking trade secrets or valuable information increases as there will be a difference of laws (Budleret al. 2021).http://NV4607 Interactive Learning Skills and Communication Assignment Sample

Outsourcing a key product

Through hiring an offshoring company for working on the core project a company becomes dependent upon a particular outside vendor. Outsourcing is of cost-effective nature and it makes the job easier (Budleret al. 2021). http://NV4607 Interactive Learning Skills and Communication Assignment Sample

Therefore, a company that is outsourcing may start to lose the expertise of products and core competencies. However, if expert individuals such as analysts or engineers are hired then the product improvement can be done rather than offshoring the entire product.

Management of risks

Some risk management strategies need to be adopted in order to maximise growth by a business firm. It is important to weigh the responsibilities before hiring a particular outsourcing company.

Few measures of project management such as setting timelines for meetings, tracking KPIs or metrics and identifying the person of contact can be utilised to manage this risk of outsourcing.

Through these strategies, a company will be aware of the operations at each stage of the business process associated with outsourcing (Gottardello and Valverde, 2018).http://NV4607 Interactive Learning Skills and Communication Assignment Sample In order to bridge the gap of communication, it is important to set core hours of business along with utilising effective tools of project management.

It is important to set a standardised format that will be used for communication along with using proper mechanisms of escalation (Sen et al. 2020). http://NV4607 Interactive Learning Skills and Communication Assignment SampleThese strategies can help in avoiding problems, facilitating the transfer of knowledge and resolving issues quickly that eventually make the arrangement of outsourcing effective.

The first step to managing the risk of hidden and unforeseen costs is clearly defining the outsourced requirements of the project. This will ensure that the process of business is smoothly running by avoiding instances of errors (Chen and Guo, 2021). http://NV4607 Interactive Learning Skills and Communication Assignment Sample

To deal with the risk of security, it is important to draw the strict contract of outsourcing or service level agreement by taking the help of an international lawyer to protect the organisation. In order to prevent any type of data breach, the concerning parties can be asked to enter into a non-disclosure agreement (Lee et al. 2018).http://NV4607 Interactive Learning Skills and Communication Assignment Sample

In order to minimise the risk of outsourcing the main product, only some components of a product can be outsourced by keeping the main management and employees in the office. The best idea is to hire specialists such as developers or designers that will be considered as the extension to a team (Zhang et al. 2018).http://NV4607 Interactive Learning Skills and Communication Assignment Sample

Conclusion

It can be concluded that outsourcing increases the productivity of a company and the investment needed for manufacturing a product can be done in other sectors of a business firm that need immediate attention.

It can be stated that the risks such as barriers to communication can pose a threat to the monitoring capability of an organisation. The large geographical distance of vendors can also be considered a threat that leads to a lack of control. It can be also concluded that the risks can be mitigated by setting the proper aim of outsourcing along with signing different agreements.

References

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Chen, G. and Guo, D., 2021. Financial Outsourcing Risk Analysis from the Perspective of Service Sector. Sch J Econ Bus Manag, 7, pp.185-189. Available at: <https://saspublishers.com/media/articles/SJEBM_87_185-189_FT.pdf> [Accessed 24 April 2022]

CIODIVE, 2022. UPDATE: IBM confirms $1.6B ‘outsourcing’ deal with Lloyds Bank. [Online]. Available at: <https://www.ciodive.com/news/update-ibm-confirms-16b-outsourcing-deal-with-lloyds-bank/438124/>[Accessed 4^th March 2022]

Dahlström, C., Nistotskaya, M. and Tyrberg, M., 2018. Outsourcing, bureaucratic personnel quality and citizen satisfaction with public services. Public Administration, 96(1), pp.218-233. [Online]. Available at: <https://onlinelibrary.wiley.com/doi/pdfdirect/10.1111/padm.12387> [Accessed 24 April 2022]

Dautovic, G., 2022. 15 Must-Know Outsourcing Statistics for 2022. [Online]. Available from: <https://fortunly.com/statistics/outsourcing-statistics/#gref>[Accessed 4^th March 2022]

Deloitte, 2022. 2020 Global Outsourcing Survey. [Online]. Available from: <https://www2.deloitte.com/us/en/pages/operations/articles/global-outsourcing-survey.html> [Accessed 4^th March 2022]

Dorn, D., Schmieder, J.F. and Spletzer, J.R., 2018. Domestic outsourcing in the united states. US Department of Labor Technical Report. [Online]. Available from: <https://www.dol.gov/sites/dolgov/files/OASP/legacy/files/Domestic-Outsourcing-in-the-United-States.pdf> [Accessed 4^th March 2022]

Forbes, 2022. “Who Are Apple’s iPhone Contract Manufacturers?”. [Online]. Available at:<https://www.forbes.com/sites/patrickmoorhead/2019/04/13/who-are-apples-iphone-contract-manufacturers/> [Accessed 4^th March 2022]

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Kaur, H., Singh, S.P. and Majumdar, A., 2019. Modelling joint outsourcing and offshoring decisions. International Journal of Production Research, 57(13), pp.4278-4309. [Online]. Available at: <https://www.researchgate.net/profile/Surya-Prakash-Singh-3/publication/325063069_Modelling_joint_outsourcing_and_offshoring_decisions/links/5afaddbe458515c00b6c4399/Modelling-joint-outsourcing-and-offshoring-decisions.pdf> [Accessed 4^th March 2022]

Kayar, M.A.H.M.U.T. and Bulur, Ö.C., 2019. An Investigation of the Benefits of Using Outsourcing for Apparel Companies. International Journal of Innovative Research and Reviews, 3(1), pp.6-10. [Online]. Available at: <https://dergipark.org.tr/en/download/article-file/968474> [Accessed 4^th March 2022]

Lee, G., Shin, G.C., Hwang, D.W., Kuper, P. and Kang, M., 2018. How manufacturers’ long-term orientation toward suppliers influences outsourcing performance. Industrial Marketing Management, 74, pp.288-297. [Online]. Available at: <https://www.academia.edu/download/73362481/1_s2.0_S0019850117309422_main.pdf> [Accessed 4^th March 2022]

Pankowska, M., 2019. Information technology outsourcing chain: Literature review and implications for development of distributed coordination. Sustainability, 11(5), p.1460. [Online]. Available at: <https://www.mdpi.com/2071-1050/11/5/1460/pdf> [Accessed 4^th March 2022]

Patel, C., Budhwar, P., Witzemann, A. and Katou, A., 2019. HR outsourcing: The impact on HR’s strategic role and remaining in-house HR function. Journal of Business Research, 103, pp.397-406. [Online]. Available at: <https://centaur.reading.ac.uk/74974/1/Article%206.pdf> [Accessed 4^th March 2022]

Raeissi, P., Sokhanvar, M. and Kakemam, E., 2018. Outsourcing in Iranian hospitals: findings from a qualitative study. The International journal of health planning and management, 33(4), pp.e1250-e1261. [Online]. Available at: <https://www.researchgate.net/profile/Edris-Kakemam/publication/326918843_Outsourcing_in_Iranian_hospitals_Findings_from_a_qualitative_study/links/5b96bc1192851c78c411426c/Outsourcing-in-Iranian-hospitals-Findings-from-a-qualitative-study.pdf> [Accessed 4^th March 2022]

Sen, S., Kotlarsky, J. and Budhwar, P., 2020. Extending organizational boundaries through outsourcing: toward a dynamic risk-management capability framework. Academy of Management Perspectives, 34(1), pp.97-113. [Online]. Available at: <https://publications.aston.ac.uk/id/eprint/37517/1/AMP_Paper_4_Sept_FINAL.pdf> [Accessed 4^th March 2022]

Yuan, Y., Chu, Z., Lai, F. and Wu, H., 2020. The impact of transaction attributes on logistics outsourcing success: A moderated mediation model. International Journal of Production Economics, 219, pp.54-65. [Online]. Available at: <https://e-tarjome.com/storage/panel/fileuploads/2020-02-04/1580801635_E14355-e-tarjome.pdf> [Accessed 4^th March 2022]

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