Essay On Outsourcing A Division
Type of paper: Essay
Topic: Outsourcing, Decision, Company, Decision Making, Strategy, Evaluation, Quality, Importance
With regard to business, the term “outsourcing” involves contracting out a business process or a set of such processes to another party. Globalization trend in general and ever closer economic links in particular determine the fact that outsourcing becomes an integral part of business worldwide. One of the consequences of such development is of special importance for outsourcing-related decision-making. Due to wide-spread nature of outsourcing, companies tend to concentrate more on the benefit side of decision at hand, rather than accompanying costs. When evaluating outsourcing decision, I will try to dedicate equal attention to both benefits that it can bring and related costs.
The first step that needs to be completed before the analysis of outsourcing-related costs and benefits, is determining activities that need to be outsourced. To find out whether a task is the one to be outsourced requires applying a specific logical scheme that consists of several elements, such as identifying strategic importance of a task; identifying the task’s contribution to operational performance and assessing the degree of outsourcing risk, concerned with strategic and operational importance of a task. While outsourcing strategically and operationally important tasks tends to represent significant risk (in such cases, it is recommended to retain a task or form strategic alliance), tasks of lower strategic and operational importance need to be considered.
The second step of the evaluation process will deal with assessing prospective benefits in the light of current costs of production and possible savings. Implementation of this step of evaluation process also requires specific attention to be paid to the way other companies, operating within the same industry, deal with outsourcing (if such data is available). Such research will be helpful with regard to finding out whether outsourcing is a common decision for the industry at hand. If not, it is important to develop an understanding of the reasons behind competitors’ not practicing outsourcing.
After getting a general understanding of activities to be outsourced and benefits that can be obtained with the help of outsourcing, it is worth considering accompanying costs that can frequently become a source of outsourcing-related failure. There are several types of accompanying costs that need to be taken into account with regard to a decision to outsource. Firstly, the costs of incomplete process knowledge are to be considered. In many cases, it can seem that a process is well-documented, and outsourcing it will not require changes and amendments to be made into existing documentation. However, such image is frequently misleading, because a company does not possess an experience of processes being conducted by people, not working with it. Therefore, outsourcing-related decision requires the costs of possible failures, as well as improvement of documentation to be considered.
Secondly, significant risk is concerned with legal framework within which outsourcing is being conducted. Thus, the costs of involving legal team at the early stage of a project, as well as the ones that may stem from partners’ failure to execute their contract obligations in an accurate manner also need to be researched.
It is evident that successful outsourcing of a function requires continuous communication between a company that outsources a function and the one that executes it. Evaluating a decision concerning outsourcing needs to consider costs, necessary for ensuring high-quality communication. In this regard, special attention needs to be paid to the fact that communication is required for executing various functions, such as guiding and tutoring (especially at early stages following the outsourcing-related decision), as well as monitoring and control of performance. The way these functions will be organized both from managerial and a technical point of view is to be considered from the very beginning of outsourcing a process.
One of the most important concerns that stems from outsourcing lies in the fact that outsourced processes lose their initial quality. Therefore, costs of maintaining high quality of outsourced products and services needs to be taken into account. Ensuring high quality of outsourced processes is also highly concerned with the mode of communication between involved companies, especially in the light of monitoring and control functions. Finally, the costs of change are to be investigated.
In-detail consideration of all accompanying costs allows conducting an objective cost-benefit and critically evaluating outsourcing-related decision.
The difference between prescriptive and descriptive methods of decision-making is as follows. While adherents of prescriptive methods of decision-making focus on prescribing methods for making optimal decisions, followers of a descriptive approach tend to suggest ways in which a decision can be made. I would focus on step-by-step description of the way a decision is to be made, `rather than prescribing a methodology to make it. In my opinion, such approach is optimal due to its general nature and subsequent applicability to different situations and circumstances. At the same time, it is good for taking into account the challenges, peculiar to specific decision-making process. For instance, choosing descriptive approach in case of evaluating a decision, concerning outsourcing, requires that one considers various types of accompanying costs that stem from the very fact of the decision to outsource, such as costs related to communication, ensuring quality etc.
Making a decision on outsourcing requires in-depth knowledge of a company itself, an industry, where it operates, and peculiarities of outsourcing within an industry. Furthermore, a person, involved in decision-making, requires a range of critical thinking skills to be capable of making an optimal decision with regard to outsourcing. The key and most important skill is an ability to recognize challenges, so that workable ways to include them into decision-making schema can be developed. Then, it is vital to be able to prioritize and include the developed order into the process of decision-making. This skill is necessary for elaborating on a structured description of the way a problem needs to be addressed. Thirdly, as the problem-solving schema, developed by a decision-maker, can be used by other people in the future, it is necessary to be able to use language with accuracy and clarity. Accurate and clear description of steps to be taken to address specific issue is necessary to provide other employees of a company with an opportunity to utilize elaborated schema in the future. Finally, for a person to make strategic decisions within a company, requires a capability of rendering accurate decisions about different phenomena, influencing organizational life.
Deciding on outsourcing is a strategic function to be executed by a company’s manager. Making such decision requires clear differentiation between tasks of high strategic and operational importance and the ones that can be easily outsourced, as well as an in-detail cost-benefit analysis concerning the decision at hand. Descriptive method of decision-making helps to elaborate a step-by-step schema to make and evaluate decision on outsourcing. Making such decision requires a range of critical thinking skills.