From making a decision to pick up either outsourcing or Insourcing, implementing to same to establishing the complete enterprise, both the business processes are fraught with a large number of issues. They have their own advantages too, this explains the fact that the trend migration from outsourcing to Insourcing and vice versa happens frequently, not just one way but both the ways. This paper attempts to address these issues that are encountered by the whole praxis.
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Outsourcing is a more familiar term than Insourcing, though the latter was practised before the former. Outsourcing can be defined (Chase et al. 2004, 273) as an ‘act of moving some of the firm’s internal activities and decision responsibilities to outside providers’. Another definition, states that ‘outsourcing is defined as the procurement of products or services from sourced that are external to the organization’.
On the contrary, Insourcing can be explained as ‘internal sourcing of the business activities’. This is an activity that takes place inside a particular organization, delegating to different departments though they could be geographically distanced. So adding up, outsourcing is an inter-organization process whereas Insourcing is an intra-organization activity.
Before delving deeper into the comparing the two terms and discussing issues, consider an instance to understand them better. A company just started up selling making hardware components as their core business. For the initial few months, there has not been a significant benefit or clear cut profit figures observed. Thus the company decides to ‘delegate’ the sales and marketing part to another an ‘external service provider’. The business picked up, certainly and demanded online services. So the next step was to ‘delegate’ the building of a web space and extending the services online. This work could be outsourced to a web publishing firm, to make work easier.
There is an alternative path the company could have taken. Instead of giving away the sales and the web designing part to another outside body, if the company was a large and well established firm it could have insourced the job to other departments of the same organization. For instance, consider the company has branches in India, New York, Zurich and Melbourne, and the filial in India has a web designing unit. Though the Zurich branch started the hardware unit, they can ‘delegate’ the work of the web designing to the branch in India. This intra organization delegation is called ‘in sourcing’.
The most renowned advantage of outsourcing is that the organization can concentrate on their core mission or business having delegated other tasks. This apart from reducing operational costs improves quality and assures customer satisfaction. Certain firms are best at what they are doing – such firms should be the target-outsource providers.
There are certain common operations that are preferred to be outsourced. [thethrivingsmallbusiness.com]. Some of them are Human Resources, that attends to reaching people, conducting tests and interviews to recruiting and on boarding them. The obvious ‘Information Technology outsourcing’, Accounting/Payroll, Customer Support, Marketing Research/Analytics, Order Fulfilments and Facility Management are some of the operations that are frequently outsourced.
Apart from advantageous Cost Cutting, Quality improvement and Customer Satisfaction part of the outsourcing, the disadvantages are aplenty as well. ‘Quality’ is the pivotal reason. Once the product has been delivered to the core company, the service provider has no liability to the product unless specified as a part of the SLA. So the customer of the core company can blame only them and they might not even be aware of the fact that certain functionalities are outsourced. Another issue is the ‘timeline’. Knowledge Transfer, the OS client firm-Service Provider Coordination, Task allocation, Work Plan and Agreements can for certain take a long time to stabilize. This however depends on the type of communication. [Karthleen Goolsby] a writer at an outsourcing buzz blog conducted research on the various types of communication that happens between the two parties. Ad-Hoc and informal communication expedites the whole process, whereas formal and governance meetings that happen twice in a year or so, obvious delays the process and also have the disadvantage of being ‘too high-level’. Another strong issue that has off late arisen are the Labour Issues. With the American government framing certain rules and having a strong opinion about outsourcing their work to other countries that provide less-expensive labour, the view point has experienced a change. This sometimes affects the perspective of the workforce response to the outsourcing creating a slightly uncomfortable feeling that is starting to have an impact on the daily productivity.
Knowledge of the organization is also becoming an issue these days. The reason behind this being – the ‘increased interaction of the service provider and the client’s customer itself’. The employee of the client will certainly have more knowledge about the company to interact with the customers than the client’s service providers.
One serious issue, when it comes to outsourcing – layoffs. There is always instability in the staffing patterns either extreme demand of resources or having a necessity to lay off employees. These are some of the serious outsourcing issues that the companies around the world have experienced.
Insourcing in the same lines have both drawbacks and vantages. The obvious positive about Insourcing is having the ability to oversee the whole process instead of overlooking them. This facilitates a closer connection with the employees who are working on the tasks, facilitating a clear cut control to the core company saving time and avoiding quality risks.
Insourcing can have the advantage of simplified deal agreements, flexible strategy configurations and cost effectiveness. The best part is that it could facilitate the accomplishment of a company’s long term goal. Developing the Insourcing unit inside a company can enhance the current business model of the company. But this could complicate the issues and increase the risk occurrences as the concentration of the business missions is not restricted to the core activities of the company. Thus identity of the company experiences a change in the way it is looked at, which could go to the better or the worse depending on the success of the migration.
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Having had bad experiences with the previous outsource firms and cumbersome challenges with the Service Level Agreements are some of the reasons people prefer to shift. This is because setting up, tracking, managing and monitoring the SLAs are some of the most important tasks when outsourcing some services. This consumes not only time but also resources and their monetary contributions.
Certain companies are the best at what they are doing. Delegating such work to such companies can be extremely advantageous to the client, as setting up such expertise inside a company cannot take place very easily. It requires huge amount of investments, resources, time and management, that could distract the company from its primary objectives. Apart from this a major issue is staffing and the investments for these in-house resources. Insourcing does bring the whole control of the tasks into the hands of the client company, but that can also introduce serious issues. Management of the new activities cost of the labour, customer benefits and satisfaction, quick deliverables, all which were duties of the outsourcing company should now be inherited by the Insourcing unit. This certainly at least in the initial stages will not be in line with the core competency of the organization’s strategic missions.
According to Bozarth and Handfield, Environmental instability, the ability to monitor supplier’s performance and Relationship of the product or service to buying the firm’s core competencies are some of the most important factors that should be considered when deciding on which strategy, outsourcing or Insourcing would serve better. If the organization does not have the expertise services in the area of requirement and that does not fall under the core competency then outsourcing the work would be an intelligent decision. This process is flexible because either a small part or the whole project could be outsourced or insourced. Insourcing would be a right decision if the company is expanding and if the activities come in accordance with its long term goals.
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