Outsourcing is one of modern trends in HRM which seeks to enhance the competetive advantage of the business by contracting out inhous operations. The HRM strategy has been of significant help in helping many organisations across the globe maximize on their output by acessing specialised services at alower cost compared to investing in human resources and buying of the requisite facilities for organisations operations. This paper will examine the concept of outsourcing in two folds. First, it will examine the benefits and the disadantages of the HRM strategy
For an organization to enhance its effectiveness in the competitive global market and to fulfill both its long-term and short-term goals, there is a need for redefining the HRM strategies and shift focus to the strategies that promote core competencies of the organization (Best,2014). Outsourcing which is one of the emerging trends in the business world is a move in the right direction to increasing productivity, saving on cost and enhancing the competitive advantage of the business entity. For an organization to adequately survive in today’s business world, it has to focus on embracing strategies that promote flexibility, speed, and agility of its operations. To achieve these, more concentration should be put on pursuing core business competencies while at the same time contracting out non-essential functions to an external body to carry out the activities on behalf of the organization (Brown, 2012).
Outsourcing is an HR management strategy whereby an operation of an organization that was initially performed in-house by the employees is contracted out to another institution for a specified period. Recently, the practice has been embraced by both profit and non-profit making organizations. Primarily, outsourcing is always informed by the marginal revenues and cost that exists after a critical analysis of the benefits of contracting out a service to when the operations are undertaken in-house by the employees (Kate et al., 2014).
Outsourcing of services can be done both locally and internationally. Internationally outsourcing occurs where organization sub-contracts offshore services of another organization abroad. On the other hand, near shore outsourcing is a strategy where an organization sub-contracts services from international organizations that lie in the same continent or geographical location. Furthermore, nearshoring outsourcing entails contracting out of services to an organization that is within the borders of the country (IAOP, 2010)
Benefits of outsourcing services
A study by (Nitschke, 2011) postulates that the integration of outsourcing strategies into a business ventures guarantees an increase in the overall outcome of the business. Outsourcing as a management strategy gives the business to accomplish the following goals:
Cost efficiency and effectiveness
The cost of acquiring an organization’s asset has been so exorbitant in the recent past because of the effects of the global financial crisis. For an organization to maintain its competitiveness, it has to develop strategies that will keep the price of production as low as possible while maximizing the profits (Oshri et al., 2011). According to Rodney, (2014) Outsourcing has been seen as a cost saving technique; the organization contracts out non-core competencies while at the same time maintaining their customer base hence a guarantee to competitive advantage.
Global competition among players in the business requires an organization to invest heavily in human capital in enhancing service delivery and quality of the products. However, Ronac (2015) reiterates that the investment in qualified human capital may be a costly affair. In addition, the employees have to undergo constant training so as to acquire modern skills to improve their efficiency at work and maintenance of the administration and supervision costs. Outsourcing ensures that the organization still access the services without necessarily incurring the costs of employing the staff. This strategy makes the business entity to save a lot of money.
Makes the organization focus on competencies
The decision of many organizations to outsource specific services is guided by the need to concentrate on the institutions key competencies and put less emphasis on low-value competencies. Contracting out of services according to Rolstadas (2010) tends to reduce the workload of the existing staff thus making them spend a great deal of working time on the key business competencies. Outsourcing organizations can easily handle some activities like recruitment of the employees. The managers do not have to waste time conducting interviews they only concentrate on achieving the organization’s goals.
Promotion of HR strategy
Outsourcing has been one of the techniques employed by many organizations to promote effective HR strategies. Selvaggio (2014) argues that the practice tends to enhance the efficiency of the organization thus high performance. The practice has led to a paradigm shift from the traditional role of the HR, which included recruitment, management of the payroll, and training. Rather, it engages services of other organizations who serve as business partners.
Transference of the risks
Outsourcing of services enables an organization to transfer the risks in its operations to another organization. The outsourced entity in the most events is the specialist in the specified field thus has an obligation to plan for the risk factors in a better way. In addition, the organization being outsourced should be one, which meets the organization’s growth agenda (Twine, 2012).
Outsourcing of services of internationally recognized institutions which keeps the quality of services as its core guiding principle can help an organization improve its products and services thus increasing its competitiveness on the market (Tho,2012).
Access to skilled personnel
The organization can benefit from specialized skills, which they could not afford in the event that it decided to employ the specialist on a permanent term. Outsourcing ensures that the organization have access to these services at an otherwise lower cost.
Disadvantages of outsourcing
The primary objective of outsourcing is to reduce the cost of production; however, there are risks that come with the hidden costs that may pose dangers to the organization’s revenue. May organizations in most cases underestimate relocation, travelling expenses, setup costs that tend to cost the organization a great deal of money (Vagadis, 2011). In addition, the organization has to incur costs in training its staff on how to measure the progress and outcome of the outsourced services.
Loss of confidentiality
A lot of security concerns can be addressed with outsourcing of services. The company’s crucial information is always accessed by the outsourced organization a fact that poses a security threat to the organization. Keeping of the operations of the organization in-house increases the security of the organization’s information. Some unscrupulous individuals might sell the organization to a competing organization thus making the business venture to loose in the market since its business strategy is exposed to the competitors.
Damage to the organization’s reputation
If the outsourced company does not perform its work with due diligent, for instance, manufacturing of substandard goods, and the reputation of the organization may be damaged thus losing out to its customers.
Loss of managerial control
The organization that contracts out its services does not have a direct control of the production process. This makes it hard for the institution to influence the outcome of the process. In addition, the outsourced organization may take more time than expected thus dragging the institution’s development plan.
Differences in culture
Various organizations have varied strategies that are employed to accomplish their tasks. The diversity in the culture may cause a conflict between the two organizations thus affecting the efficiency of the entire process. Cultural differences may take various dimensions like the communication process, management and supervision and monitoring and evaluation.
Reduction of the morale in-house employees
A study by Brown (2012) indicates that outsourcing lowers the morale and commitment of the in-house employees. This is because the employees may feel that the organization undermines them by bringing people from outside the organization to perform duties that they are competent it. The lowering of morale may lead to low output.
Outsourcing makes an organization to rely on services of other organizations in operationalisation of their in-house activities. The strategy has made many people to lose their jobs since the organization renders them obsolete as their duties are being carried out by the outsourced entities. The organization is always left with no other option other than lying off the staff. Those people who are laid off may create a bad publicity to the organization in case they feel they were sacked unfairly.
Success of an organization is dependent on another organization
Outsourcing makes an organization to entirely depend on another institution for its success. The situation may compromise the strategic plan of the outsourcing entity since in the event that the outsourced organization financial situation comes to a down turn; the outsourcing organization will have also to suffer.
Poor quality of products
The organization which is being outsourced is always motivated by making of profit. Since the contractual details and payment are at affixed price, the only strategy for the outsourced entity to make more profit will be to reduce the quality of the products to reduce the production cost. So long as the outsourced organization meets the terms of the contract, the outsourcing entity will be forced to pay for the services.
Outsourcing is a significant business strategy that ensures that the organization saves on production cost while at the same time maintaining its performance thus boosting its competitive advantage. However, care should be taken while planning to outsource to ensure that the inherent risks that come with contracting out of services are adequately planned and dealt with so as to promote the output of the organization. Furthermore, it is imperative for the organization to develop policies that will govern the process of outsourcing through establishment of a caretaker committee that will ensure that the differences in culture and operations between the two partnering institutions are dealt with expeditiously to promote the competitiveness of the outsourcing organization. In addition, before one engages in an outsourcing venture, it is imperative for the managing of the organization to conduct a critical analysis of the benefits of contracting out an in-house operation compared to if it is done within the organization. This technique will enable the organization to make informed choices that will lead to increase in its revenue.
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