Outsourcing a long-standing approach in the business world, however, it did not reach a widespread use these days. The introduction of outsourcing practices into the current market is considered as an essential tool for enterprises. With regard to its general notion, outsourcing is the execution of targeted operations by enterprises that include allocating specific functions to the external vendor in order to deliver pre-established services. As such, this method is commonly perceived as a vital tool for managing the business. The outsourcing process covers the services, such as accounting, human resources management, supply chain management and IT services. Considering the methodologies, key factors and pitfalls, including risks of the outsourcing process, one might conclude that the best practice approach to outsourcing depends on the clear strategy and vision any company must pursue.
Outsourcing is not an emerging approach in the modern business environment as the most crucial daily activities are presently being outsourced. Altogether, they facilitate the effective operation of the enterprise. As such, many companies select to outsource their operations to external providers. However, a completely new method emerged in the last few years, such as the outsourcing of services in areas that could deliver a competitive benefit to small, medium and larger enterprises. The advancement of diverse IT and computer departments inside the companies was caused by the need to produce information and communication technologies to enhance functioning within competitive settings.
It is important to note that prompt technological advances had a considerable impact on the international business sector. According to Vaxevanou & Konstantopoulos (2015), outsourcing is the “process of creating and administering a contractual relationship with an external vendor” concerning the provision of skills that were previously given by the firm’s internal services. The advantages of the outsourcing process imply the fact that the managers of the firms can pursue the production line. Furthermore, one of the most crucial facets of the outsourcing contract is ensuring the working relations with the human resources of the contracted enterprises. Based on recent research, outsourcing is steadily expanding within small and medium enterprises because of two main reasons. The first reason corresponds to the generalized use of the Internet and its growth by large companies, along with the use of mass media. The second reason refers to the reduced personnel of small and medium enterprises, which frequently lacks the required area of expertise.
Outsourcing Management and Methodologies
The companies are capable to exempt their management from certain operations, reducing their responsibilities only to the monitoring of external providers by virtue of outsourcing. In addition, this process enables focusing on the most significant operations that can bring a competitive edge to the organisation. Jun (2020) outlined four primary outsourcing abilities, such as systematic thinking on offshore outsourcing, global information systems vendor management, global information systems resource management, and information systems change management (p. 219). Moreover, there are five lessons that lead to successful outsourcing control. This involves taking a systematic approach to developing outsourcing capabilities, working on the entire outsourcing lifespan, recognizing the dynamic character of abilities, investing in structure and people, and regularly auditing outsourcing capabilities.
Factors and Pitfalls to Consider
Despite the significant benefits companies get from the outsourcing, there are several challenges they might face, including contract length, competitive edge, information confidentiality issues, problems in defining scope. Jun (2020) provides the crucial strategy one should follow to avoid risks of outsourcing. This implies developing a sourcing strategy, preventing from negotiating solely on price, having a good understanding of cost structures, as well as examining the company’s capabilities.
The organization can select the best outsourcing approach within four basic approaches and careful assessment of the advantages and disadvantages. Furthermore, a company should consider its “organizational circumstances and requirements” (Jun, 2020, p. 218). As an alternative, the mixed method of outsourcing can be applied.
Best Practice Outsourcing
Every organization and its executives should have a clear idea of the core objectives and evaluate how the outsourcing agreement might support them. The best practice approach to outsourcing implies that it promotes achieving the desired benefits from any sourcing-driven cooperation. Therefore, one must consider the following critical success factors. These include “shared vision, clear strategy, choice of supplier or partner, the nature of outsourcing agreements, the clarity of service-level agreements (SLAs) and their governance, and ongoing relationship management” (Kakabadse & Kakabadse, 2016, p. 53). As such, shared vision, developing a clear strategy, and ongoing relationship management are referred to as the most crucial factors.
Hence, any organization should follow the activities regarding these three steps, such as building a vision shared by the top team considering the company’s major capacities by regular meetings and ongoing deliberations. It is important to choose a business model, predict the contractual expenses and SLAs, choose the supplier and location, and incorporate the outsourcing activity with the host server. In addition, the company should establish the evaluation and conflict settlement structure. The ultimate factors to consider are “coordination, multilevel relations management, managing risks, mentoring, and benchmarking performance” (Kakabadse & Kakabadse, 2016, p. 57). This can be implemented by assuring the cultural fit, determining the market status, setting costs, establishing universal performance to foster responsibility, and actively controlling the relationship considering the viability and benefits.
The core of outsourcing success lies in the top management agreement concerning the organization’s vision and related strategies for its accomplishment. Outsourcing is not a new concept within the current business environment, however, it proves to be a beneficial approach for the enterprises. The decision to outsource usually obliges the organization to reassess its business model. The successful outsourcing, including the global sourcing and offshoring, is based upon the maintaining of the efficient linkages between the interested parties. Ultimately, it is vital to retain the results-oriented approach and manage such beneficial arrangements that are becoming more noteworthy.
Jun, X. (2020). Essential topics of managing information systems. Singapore: World Scientific Publishing.
Kakabadse, N., & Kakabadse, A. (2016). Global IT sourcing: Analysis, developments, and best practice considerations. In R. Gervais & P. Barrar (Eds.), Global outsourcing strategies: An international reference on effective outsourcing relationships (pp. 49–65). (2nd ed.). New York, NY: Routledge.
Vaxevanou, A., & Konstantopoulos, N. (2015). Basic principles the philosophy of outsourcing. Procedia – Social and Behavioral Sciences, 175, 567–571. Web.