Many organizations are trying to cut costs for the purposes of trying to increase their revenues. On the other hand, many organizations are trying to survive in the global financial crisis. For this reason, companies need to find measures that would help them get back into business. In this case, many organizations are using outsourcing as a business strategy to help them cut costs and get back into business. Moreover, many organizations find outsourcing a strategy that will help the company grow. In this case, based on the analysis and facts, outsourcing is an effective tactic for cutting costs and pruning the organizations back to prepare for future growth.
Outsourcing can be described as the strategy where an organization puts part of the business processes in care of an independent organization (Krueger, 2010). Many managers tend to believe that when they release an operation or a department to another company, they will lose business secrets and power over that operation or department. On the other hand, other managers think that it is a risky venture that can be costly, in the end. To prove them wrong, there are certain facts that have truly proven this not to be the case. Outsourcing is saving companies a lot of money helping them to survive the global financial crisis.
Firstly, outsourcing is one of the most cost effective methods for the human resources department and finance department. A company might decide to outsource the whole transport department to another company, for an example (Ogorelc, 2007). In this case, costs used in maintaining the vehicles are saved. Secondly, the amount of money, which is used to pay the employees, is also saved. Thirdly, the human resource saves the cost of maintaining high employee turnover in a company. All this shows that an organization employing this strategy will save a lot of money, by the different cost reductions. Therefore, outsourcing is an effective tactic for cutting costs and preparing companies for future growth.
Outsourcing helps companies concentrate on their core business activities. Thus, the company can plan for its future growth effectively, due to cutting off part of the back load activities. Secondly, companies are capable to save a lot of money while using outsourcing. In this case, when the company has money and time to plan, it means that its strategy is extremely effective. It is worth noting that companies do not forget about the existence of the outsourced department (Venturist, 2012). The only thing, which changes, is the work processes involved in the outsourced department. For this reason, it can be concluded that outsourcing is an extremely effective tactic for helping companies pull back and plan the future.
Outsourcing is extremely beneficial for small companies that do not have the resources to maintain a process in the organization. For instance, a company may be dealing with the processing of car parts. However, due to lack of office space, this company may find it difficult to have a testing department for the products. On the other hand, a company may find it difficult to have a human resources department that will control the high turnover of employees. In this case, the company will enjoy the advantage of outsourcing the process, rather than straining its resources, which would lead to excessive expenses (Venturist, 2012). For this reason, the company will be able to plan their future effectively, due to outsourcing.
Reduction of overheads is another effective item of the costs reduction of outsourcing. In this case, a company might be under pressure to expand its offices. However, the company may not have the office resources since it would be extremely expensive to buy or lease another office (Venturist, 2012). In this case, they might consider releasing those business processes that are not of much significance in the organization to create space for the other organizations. For instance, a company may consider outsourcing their call center to another company, to increase space in the offices, and at the same time, save costs. This fact shows that outsourcing is extremely effective for those companies that are planning for the future, since it is a valuable tool for cutting costs.
There might be cases, when a company may have difficulties in controlling a certain department, due to its poor performance. On the other hand, the organization may suffer from high employee turnover, thus making it difficult for the management to control the department. Therefore, the company might consider using outsourcing, as a strategy to improve the department operation efficiency, thus improving the overall quality performance of the company. It is worthwhile noting that independent company tends to specialize within one line of business. In this case, if it is transport services, the company would have concentrated on improving the efficiency of transport services, as compared to a company that manages its own transport department (Ogorelc, 2007). In this case, the company will save costs and quality will improve, as well. For this fact, outsourcing is the most effecting method for companies that are planning to improve their quality in the future, while cutting costs.
Outsourcing helps organizations improve their staffing flexibility. This means that there are certain organizations, where work is slow at a certain point of the year. This shows a number of employees will retrench until the company moves back to a peak season. When the peak season finally starts, the company will have to rehire the employees, for purposes of improving working performance during the high season. This back and forth hiring of employees is extremely expensive and time consuming for a company that is planning a future growth. In this case, the company employs the outsourcing to resolve the issues that pertain to the flexibility of the employees. For this reason, outsourcing saves the problem of inflexibility and costs. As a result, the company will be capable of planning its future effectively.
The difference in time zones is another factor that affects organizations especially, when companies have gone global. For instance, a company dealing with accessories, like phone accessories, may decide to expand its business globally. The problem might be the difference in time. For example, time in America, the location of the headquarters of the company, would be different from time in Asia; this is where the company’s customers are. When the company in America closes in the evening, a customer in Asia might be fully awake. Therefore, if customers have a problem, they will find difficult contacting the company call center, due to the different time zones. However, if the company decides to outsource the call center to cater for customers, who live in Asia, it would save a lot of money, which could have been lost (Rake, 2005). As a result, it will increase revenues. For this reason, outsourcing is an effective strategy for future planning process for the companies.
Outsourcing helps companies in distribution of risks. Each process in a company has certain risks associated to it. For instance, the transport department may be risky for the company because of many insurance costs, maintenance costs, including the employees’ health insurance. When the company uses the outsourcing, most of these risks will vanish. In this case, the costs of maintenance and insurance will be in the hands of outsourcing company. Moreover, outsourcing company will have to cater for health insurances for employees working in the transport department (Schniederjans, Schniederjans & Schniederjans, 2005). Therefore, outsourcing is an extremely powerful strategy for companies, who are planning their future, since it is efficient for cutting costs and, at the same time, reducing risks.
Largely, outsourcing does not only save money, but improves the quality of other departments in the office, as well. One department that has improved is the department for customer care service. This is because outsourcing companies concentrate too much on improving efficiency of the customer service. This means that, if they do not do this, other competitors in the industry may take advantage over their business. For this reason, customer service has improved considerably, due to the outsourcing. In this case, the company will improve its revenues due to improved quality and efficiency of the department for the customer care, thanks to its commitment in serving the employees. Therefore, the outsourcing has not only reduced costs but also improved the way of services of the customers.
Outsourcing is likely to increase the skills of internal staff in the company. For instance, a company may require working on a project that requires technical skills. In this case, internal employees of the organization may not be qualified enough to work on the project. For this reason, outsourcing of qualified staff may be necessary. Therefore, internal employees will have the opportunity to work with the qualified workers. As a result, they will gain a lot of experience that could be useful for the organization, in the future (Engman, 2007). For this reason, outsourcing does not only save costs, but it also improves skills of many internal employees in the organization.
Outsourcing of technology is another tactical strategy used by companies for cost reduction. Over the past few years, technology has taken a radical change, globally. For many managers, technology is an extremely expensive cost factor, which incurs a lot of capital for many companies. In this situation, companies will tend to outsource those processes that require new technology for purposes of being competitive in the future and savings costs. Moreover, the company will have time to plan their future so that they can improve other core parts of the business. For this reason, outsourcing will help companies plan and save costs by using new technology, which they do not own.
Despite the numerous facts, as mentioned above, some managers still believe that outsourcing is not an excellent strategy for the future. This is because they believe that outsourcing tends to sell company secrets to the other independent companies. Instead of improving the business, it brings the company down; therefore, resulting in massive failures rather than improving efficiency. However, business processes do not have to have a close relation to the secrets of the business closely, which is an argument versus the people, who are against the outsourcing. For instance, transport department does not have any secrets that will expose the company. In this case, it will not cost the company anything. Moreover, it will reduce costs and keep the company secrets at the same time.
Secondly, some managers tend to think that they will lose managerial control over processes in the company. For instance, managers believe that they will not know, who is hired or fired, if the human resource department is outsourced. This will result in the loss of control over the human resource department, according to them. What they forget is that they are the ones who have hired the independent company. In this case, the managers have the opportunity to oversee everything the outsourcing company is doing. On the other hand, managers are the ones to make the contract terms (Krueger, 2010). This is where the outsourcing company will have to involve the company in any decisions that they are intending to make for the company. For this reason, the company will not lose anything.
Thirdly, another category of managers thinks that outsourcing will lead to low quality resulting in increased costs rather than profits. They believe that, due to poor pay by companies, the outsourcing company will tend to cut costs so that they can make profits. This will result in comprising the quality of work performed by the outsourcing company. They forget that the world of business has changed entirely. This is where competition plays an immense role in the market. This means that outsourcing companies are trying to improve their quality so that they win many customers. In this case, they will improve the quality of their performance for the company. Therefore, outsourcing increase quality and reduces costs, significantly.
Hidden costs in outsourcing are another part of the tactic that makes managers fear for their companies. Many additional costs are likely to incur when a company is hiring an outsourcing company. These costs may also occur during the course of the business after the contracts has been signed. As a result, the increased costs may hurt the company, thus leading to increased costs rather than reducing them, due to outsourcing. However, this problem could be easily resolved in the initial stages before signing of the contracts. In this situation, both of companies can agree on terms of the contract. For instance, if any costs are likely to occur, both companies should agree who is to cover the incurred costs. As a result, outsourcing is the most efficient and cost reducing strategy for companies to plan their future.
Finally, some managers believe that outsourcing will have a negative effect on the morale of the other departments within the company. This may be true because employees may start thinking that their department may be outsourced next. As a result, these departments may act in rebellious rather than cooperative manner. This will result in poor quality and increased costs rather than costs reductions. However, if the employees are involved in the decision making process, they will see the point which the management advocate. In this case, the rebellious departments will be motivated rather than rebellious. In the end, outsourcing will lead to an increased quality and reduced costs, resulting in increased revenues (Brown & Wilson, 2005). Therefore, outsourcing is extremely effective for companies that are planning their future if used efficiently.
Outsourcing has become the crucial thing for companies. This is because many companies believe that it is the best method to cut costs. On the other hand, there are managers, who think that this tactic is not beneficial, since it tends to compromise most companies secrets. However, based on the facts collected, outsourcing is the most effective strategies in cutting costs for companies, who are trying to plan for their future. First, outsourcing reduces costs for the organization, significantly. Second, it improves the quality of work done in the organization. Third, managers are able to concentrate more on the core business. Finally, business transfers the relevant risks to the outsourcing company.
On the other hand, some managers fear the outsourcing as a risk of exposing company’s secrets. However, this risk depends entirely on how people view it. Second, outsource does not take control from the managers. This is because managers enjoy the opportunity of overseeing every bit of work carried out by the outsourcing company. Third, quality of work outsourced to the outsourcing company does not deteriorate the overall quality; moreover, it improves the quality of services, significantly. This is because outsourcing companies are competing with one another. One of their strategies is to win as many customers as possible, through improvement of quality. For these facts, outsourcing is an effective tactic for cutting costs and pruning the organizations back, to prepare for future growth.