Question Martha Business & Management
How employers can overcome the challenges of outsourcing their non-core business activities to external providers.
Discuss how employers can overcome the challenges of outsourcing their non core business activities to external providers.
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Answer Internal Staff
Outsourcing activities is often a method employed by businesses to try to reduce costs, as it allows the business to focus on its core tasks. The external provider can provide the outsourced service with higher efficiency as they are specialised in that area. Commonly outsourcing occurs for support functions, such as IT or recruitment.
However, this approach can result in various challenges.
Firstly, there is a loss of control of the outsourced functions – this can be in terms of quality and strategic decisions. If a firm outsources its IT functions, it is dependent on the provider maintaining good quality and a stable business in order to keep the functions running. For example, in 2010 Virgin Airlines in Australia experienced a service outage due to server failures at their IT provider Navitaire (King, 2010; O’Sullivan, 2011).
This can be avoided partly through taking great care in selecting a reliable outsourcing provider, and making the agreement clear. However, this cannot account for future changes in the provider’s service quality, or business performance. Another way to help overcome the loss of control is through good communication and partnership between the companies to ensure that the agreement maintains relevance through any changes in requirements.
A further challenge is in the potential disruption created from internal restructuring when a function is outsourced. This a particular issue for large companies where significant cost is involved in altering the functions. JPMorgan had to reinstate 4000 employees after cancelling an outsourcing contract (Wighton and London, 2004). This can be avoided by making outsourcing decisions with a long term focus, and integration into the strategic plan. It is necessary to predict how the situation may change and whether outsourcing would still be useful.
Ultimately, outsourcing decision need to consider more than just cost, and focus on the future development rather than current savings.
ReferencesKing, L. 2010, Virgin airline in check-in outage chaos, (online) computerworldUK, available: [http://www.computerworlduk.com/news/applications/virgin-airline-in-check-in-outage-chaos-3241175/], accessed: 19/07/16
O’Sullivan, M. 2011, Navitaire and Virgin Blue settle, (online) Sydney Morning Herald, available: [http://www.smh.com.au/business/navitaire-and-virgin-blue-settle-20110404-1cyla.htm], accessed: 19/07/16
Wighton, D. London, S. 2004, JPMorgan ends $5bn IBM deal, (online) FT, available: [http://www.ft.com/cms/s/2/48bbd89e-0739-11d9-9672-00000e2511c8.html#axzz4ErYn6O7], accessed: 19/07/16