Abstract
The paper begins by defining the characteristics of outsourcing firms. Thereafter, reasons for outsourcing are identified such as competitive advantage and it time saving. Subsequently, the paper looks at how outsourcing can improve organizational effectiveness. Some of the methods include; through organizational strategy, effective management, cost cutting and operational flexibility. Lastly, the paper looks at how organizational effectiveness can be impeded. This is through resistance to change from employees, poor management and loss of strategic control.
1.0 Introduction
An organization is said to have outsourced their jobs when they delegate certain duties and functions to an external party. (Gilley et al, 2004)This is usually necessary in instances where a specific company has no skills for performing the task within the organization. Additionally, it can be done in order to minimize workload. Usually, the company that has provided the outsourcing service will be expected to look into matters surrounding the day to day administration of that work. For outsourcing of jobs to work for any company, there is a need for consistent communication between the parties involved. Furthermore, companies need to establish long term relationships in order to maximize the benefits of this business approach.
Outsourcing is plausible for a range of business functions such as marketing, Information technology, distribution, manufacturing, recruitment etc. The world of business has evolved today and more entrepreneurs are looking for methods of maximizing profitability. The paper will examine how organizational effectiveness in these various functions can be improved or impeded through job outsourcing.
2.0 Reasons for outsourcing
Research shows that close to seventy percent of businesses in the country have embraced outsourcing as a viable business option. Consequently, it would be necessary to look at some of the reason behind this rush. The first and most prominent reason for choosing outsourcing is to minimize business costs. Research has shown that companies can save as much as sixty percent of their business costs when they choose outsourcing. This is possible because those companies that supply outsourcing services have adequate resources, personnel etc needed to conduct that business function under consideration. Additionally, such companies may be located in other regions or countries that supply input at a lower price than in the country of normal operation. For instance, some Asian countries giving call care services charge very little for their services owing to the fact that labor supply in these countries is cheap and they can then trickle down these low costs to respective consumers in the Western world. (Littler & Benson, 2002)
Outsourcing one’s business functions can improve one’s competitive advantage. The reason behind this is that outsourcing reduces business costs. Consequently, the extra amount that would have been passed to the consumer in the form of higher prices for the commodity now becomes irrelevant as consumers pay less for their commodities. This allows businesses to compete on the basis of price thus giving them a competitive advantage.
Many businesses that do everything on their own may be exposed to greater levels of risk than those who outsource. Usually, the former mentioned companies may have problems trying to balance between choosing the right alternatives, training their employees in that area of interest, increasing reliability and maximizing efficiency. Consequently, by doing everything on its own, a company may have a difficult time trying to eliminate risks. Besides this, companies usually run the risk of spending too much on infrastructural capital. Consequently, this eats into their profitability and also reduces their chances of growing their firm. However, through outsourcing, companies can minimize their risks with regard to huge infrastructural expenditure and the overall result of this issue is that more investors will be attracted to such companies.
Outsourcing is crucial to those businesses with minimal expertise in a given field. Companies that supply outsourcing services usually have a long history of performing the services offered. This means that they can add the following qualities to their respective enterprises;
· Expertise
· Economies of scale
· Efficiency
It should be noted that outsourcing is the platform that allows small companies to compete with big ones because the latter mentioned qualities (bulleted list) are usually available in companies that engage in outsourcing their business functions. Companies can access these advantages easily without having to train the members of their organization in this area. Additionally, they need spend too much time and resources on hiring personnel who have a lot of experience in that field of expertise. Usually, getting such professionals to work for an organization can be detrimental to their finances.
Outsourcing is a viable option to any company because it takes away attention from dealing with other aspects of the business that have nothing to do with the core business functions of a company. Companies can therefore concentrate on aspects of business that they encircle their business objectives and this eventually improves their business functions. (Kakabadse,N., & Kakabadse, 2003)
Outsourcing also gives companies the opportunity of expanding. Since a company is concentrating on their core business functions while other companies deal with other aspects, then chances are that productivity will be heightened and the level of quality emanating from such a business enterprise will increase. The overall effect of such an approach is that many persons may now have the opportunity to improve their business values. This then gives them a platform for improving their business sizes.
Outsourcing is also chosen by many enterprises because through this business approach, it is possible to save on valuable time. Usually, companies that outsource can make faster deliveries to their respective consumers. The overall result is that consumers’ needs are satisfied. All clients consider prompt delivery as a positive business attribute and this may keep them coming back to that respective business.
In close relation to the latter argument is the fact that outsourcing heightens consumer satisfaction. This is because outsourcing produces better quality and also improves the nature of one’s business practices. This eventually makes that respective company more competitive and also attracts greater levels of business management. Through such approaches, it is then possible to establish a relationship with one’s clients and this makes them keep coming back to the business.
Through outsourcing, businesses can benefit from the differences in time zones between the outsourcing company and the company buying the services if they come from different countries. Many companies that outsource their business functions to Asian countries or other countries with different time zones can get the chance of business continuity. In other words, they can still be running on a twenty four hour basis even without subjecting their employees to hectic shift programs. This is because an outsourcing partner can be doing certain tasks during the night and have it completed when the company under consideration comes back in the morning. The two partners can complement one another because of the differences between their time zones. When one country is asleep, the other can be busy working on a particular assignment. Eventually companies exceed their expectations and consumers will always be satisfied with their efficiency. (Woolson & Speckhals, 2001)
Outsourcing can also contribute to the overall effectiveness of a particular country. For instance, numerous companies have managed to grow their economies by outsourcing their business functions. Taking the example of the United States, during the late nineties, there was an outsourcing boom and most of the companies that took up this approach began recording increases in profitability. The overall effect was that the country’s economy began going up. In fact, more jobs were created and national wage went up. This well performing economy was a platform for further reinvestment and this created a favorable climate for more investment thus better performance again. Similarly, other countries and regions have also recorded such positive benefits and these include
· Australia
· United Kingdom
· Etc
The common perception has been that most outsourcing jobs shift jobs to the receiving countries and hence drain the economy. However, an analysis of the latter countries has shown that most of these companies have created higher standards of living for their populace owing to the fact that new lines of work were be created. For instance, when one analyzes a country such as the US; the country began outsourcing most of its manufacturing jobs to the Asian continent. Many people thought that this would drain their economy but that was not the case. Instead, the financial services sector began growing and this eventually filled the void created by outsourcing manufacturing jobs. (Freeman et al, 2001)
3.0 How outsourcing can improve organizational effectiveness
Outsourcing can occur in a number of ways. For instance, some companies may choose to transfer all the activities and functions conducted by their employees to an external party. The overall effect of this is that a mother company may not have the need for these former employees and may be forced to release them. In other instances, outsourcing can occur by separating a certain department within a company from its mother company. Usually, the department that used to be part of the company is now the outsourcing partner and through this, a number of resources will also be transferred to the new outsourcing company. In other situations, companies may choose to outsource by taking all the resources and their employees to certain outsourcing providers. While all these methods are possible within a business environment, the most common method is the first one as mentioned above. It is essential to understand the form of outsourcing applicable to a certain company because that then determines the kind of problems that might arise in terms of organizational effectiveness. However, in order to apply the assertions in this paper to all business institutions, it is necessary to look at outsourcing in general rather than in under each of these forms.
Outsourcing can improve organizational effectiveness when applied as an organizational strategy. Usually, companies may choose to outsource with certain business objectives in mind. The first objective amongst this is the need to improve on financial performance. Usually, such companies are aware that outsourcing companies my offer them an opportunity to work cheaply through efficient technology and economies of scale. This is the reason behind the high cost saving strategies that US companies have enjoyed. By minimizing costs, companies can achieve their economic related goals and this enhances their organizational effectiveness.
The second objective is that companies get a chance of improving their operational flexibility. Usually, when a company controls all its business functions, then chances are that it may not respond to certain business conditions e.g. infrastructural changes. However, when a business has outsourced its functions, then it can always request for reductions or increases in these business functions. The overall result of this is that companies gain operational flexibility and can therefore enhance their organizational effectiveness.
Outsourcing is also good for business because there are certain situations that can be avoided through it. For example, companies that perform all their business functions may have to spend huge amounts on replacing obsolete technology. However, when that business function is outsourced, then companies will not even the feel the pinch. This means that companies can dedicate their resources to productive activities alone and thus enhance their effectiveness. (Hellriegel et al, 2002)
Outsourcing may be beneficial to specific employees in certain lines of work. For instance, research conducted among IT firms found that those who choose to separate a departmental function with the rest of the organization may have greater opportunities to climb up the ladder of corporate success. Usually, if a member of the IT department in a larger organization moves to a specialized company that outsources to the mother company then chances are that that individual will earn more than what he did in the mother company. Additionally, such an employee may be exposed to greater career opportunities through such an approach.
4.0 How outsourcing can impede organizational effectiveness
Sometimes, outsourcing may be more of curse than a blessing when organizations go for it for the wrong reasons. For instance, in countries with outsourcing booms, it has become common to find certain companies taking up outsourcing just because their competitors are doing the same. Such companies may want to convince their consumers that they are keeping-up-with-the-times. In the end, they may not be sure of which business functions really need outsourcing and which ones will result in maximum profitability if they do so. Consequently, such firms will perform poorly and their organizational effectiveness may be impeded. (Kathawala & Elmuti,2000)
Strategically, there are certain risks that come with the option of outsourcing as a method for conducting business. The first one is the fact that a business may loose property rights. This means that they may not have the ability to control the strategic direction which a certain business function is taking. There is always a danger of failing to meet one’s organizational strategies when one cannot effectively control all parts of their business.
Outsourcing can also be very problematic to a business because certain instances arise when outsourcing partners become dependent on one another. This usually occurs when the business function to be outsourced is quite complicated and may require a lot of time before an outsourcing provider familiarizes himself/herself with the intricacies of the business. This places the mother company in a vulnerable position because they may not be satisfied with services offered but may have to stick there just because they have become dependent on the service provider. The overall effect of this dependency is that companies may not get a chance of aligning their business functions with their strategic objectives. This makes them less effective.
Outsourcing can also impede organizational effectiveness because its institution may meet resistance from pre-existing employees. Many books have depicted outsourcing as a scenario in which both the recipient and the supplier can benefit. However, there are many pre-requisites to this success and one of them is the cooperation of members in an organization. When employees within a certain company realize that part of their business functions will be outsourced, some of them may not accept this easily. For instance, they may not be sure about the future of the jobs and even though they will be retained within the company, some of them may be uncertain about their future. Additionally, these employees may worry about the career opportunities available to them once certain business functions have been outsourced. Furthermore, it may be a problem in terms of the amount of pay which these employees receive after outsourcing. All these could demoralize the existing workforce and thus impede organizational effectiveness. (Gilley et al, 2004)
Closely related to this fact is that certain employees may just have a negative attitude towards outsourcing regardless of assurances from their employers. This means that such employees will always undermine activities or work conducted by other companies. This is usually depicted by a high level of mistrust between employees within the outsourcing company and the mother company. Such a negative attitude only serves to hinder business advances and organizational effectiveness. Furthermore, certain employees may not be committed to outsourcing as a viable business approach. This means that no matter what the outsourcing suppliers do, employees within the mother company may not meet their end of the bargain and this leads to failure. (Kessler & Shapiro, 2002)
Sometimes some employees may perceive outsourcing as mechanisms which their employers are using to breach their contracts. There are several repercussions to this psychological premise. First of all, employees may be demoralized from doing their jobs. Most of them may imagine that they no longer hold the important position that they did before introducing outsourcing and this eventually undermines organizational effectiveness.
Besides the latter, it is also possible for employees to worry about the conditions of their workplace. For instance, issues such as commuting may change upon instituting outsourcing. Consequently, those employees that would have been very productive in the past eventually begin performing poorly and may eventually undermine organizational output.
In other instances, employees may feel that outsourcing is a demonstration of their employer’s discontentment with their skills and talents. Consequently, such employees may assume that the outsourcing firms have been hired to make up for the deficiencies in their talents or skills. Usually, staff members that develop such tendencies may decide to quit the place of employment and may not adopt other alternatives in the end. As if this is not enough, some employees may loose their place within the organization. They tend to loose their sense of identity because the tasks that they used to do have now been taken over by other persons. (Gilley et al, 2004)
It should be noted that all the latter human resource issues are rarely accounted into the costs of outsourcing. Most organizations may merely focus on tangible expenses but these psychological consequences among their employees may add hidden costs to their business expenses (when employees under-exploit their potential). This eventually reduces their organizational effectiveness.
Research has shown that a large number of employees in firms that outsource their business activities may have similar problems to those employees that have undergone downsizing. Usually, employees who remain behind after a company has outsourced it business functions may think of themselves as survivors. In other words, they may assume that their respective organizations are not doing very well and that they may be next on the line. Usually, such employees have fears about available career opportunities. It is in fact true that some career opportunities may be limited to individuals who adopt such mechanisms for doing business. Additionally, it may also be problematic for these respective individuals when the affected company has no method for ascertaining better career opportunities in the future. (Kathawala & Elmuti,2000)
Outsourcings can also be a problem in the future when there are no mechanisms for ensuring its success. This is especially in relation to organizational change. A number of books have been written about how to handle organizational change. Most of them usually focus on adjusting organizational structures but few of them may deal with human resource issues and this is the area that may bring in the greatest amount of problems. The following issues are related to both organizational change and outsourcing and if left unchecked may cause great impediments to organizational effectiveness
· A change in organizational culture
· A change in the workplace
· A change in the work contract
· A change in methods of working
· Some transitions in job content
· Cases of forced termination
It should however be noted that organizations that do poorly in this area are those ones that failed to identify the most favorable methods for effecting change within the organization. For instance, when management fails to perform it functions, then chances are that outsourcing can fail miserably. For instance, in certain scenarios, some managers my not give a direction to their employees on the way forward after outsourcing. Additionally, certain managers may fail to clearly lay out the benefits of outsourcing to their employees and this leaves them with half knowledge about the business approach. Furthermore, managers are likely to get minimal support from their employees when they fail to align their business processes with new organizational challenges after outsourcing. Similarly, some leaders may record poor performance after outsourcing when they fail to realize the opportunities that employees can utilize to improve their knowledge.
When employers fail to deal with these issues, then organizations may not realize the benefits of outsourcing and as matter of fact, they may begin registering organizational ineffectiveness
5.0 Conclusion
Outsourcing can either improve or impede organizational effectiveness. Ways in which outsourcing can improve organizational effectiveness include; providing career opportunities to employees in specialized outsourcing firms, improving achievement of organizational strategy, instituting operational flexibility and by minimizing business risks.
However, outsourcing can also impede organizational effectiveness through: creating an attitude of mistrust among employees, creating organizational change among the workforce that may be difficult to deal with, creating a need to change management structures, creating a situation in which a company depends on the outsourcing partner, it may also cause a change in property rights and it may reduce business’ strategic flexibility.
6.0 Reference
Freeman, D. et al (2001): Survivor reactions to organizational downsizing: Does time ease the pain? Journal of Occupational and Organizational Psychology, 74(2), 145-164
Littler, C. & Benson, J., (2002): Outsourcing and Workforce Reductions: An Empirical Studyof Australian Organizations; Asia Pacific Business Review, 8, 3, 16-30
Kessler, I. & Shapiro, J. (2002): Contingent and non-contingent working in local government; Public Administration, 80, 77-101
Woolson, D. & Speckhals, K. (2001): Has outsourcing gone too far? McKinsey Quarterly, 4, 24
Kathawala, Y. & Elmuti, D., (2000): The effects of global outsourcing strategies on organizational effectiveness and participants’ attitudes; International Journal of Manpower, 21, 2, 112-128
Gilley, K. et al (2004): Human resource outsourcing and organizational performance in manufacturing firms; Journal of Business Research,57,3, 232
Hellriegel, D. et al (2002): Management: A Competency-Based Approach, South Western.
Kakabadse,N., & Kakabadse, A. (2003): Outsourcing best practice: transactional and Transformational considerations; Knowledge and Process Management, 10, 1, 60-71
