Strategic Plan Outsourcing Essay

1849 words - 7 pages

Over the last decade it has become increasingly important for the strategy in the overall firm's operations to include or at least evaluate outsourcing options. Companies in the U.S. pay about $68 billion every year to other companies for outsourced services and although a major part of these contracts succeed, there is an increasing concern due to recent broken deals. A recent study shows that 80% of companies that outsource their customer based functions are failing to meet their cost savings targets. Usually companies fail to budget hidden outsourcing costs such as customer dissatisfaction that can eventually jeopardize the future of the firm. In the information and white papers on outsourcing evaluation matrix includes four main points of value influencing the success of outsourcing strategies: the firm's Comparative Advantage, Employees, Suppliers and Customers. Every year in the United States, companies pay about $68 billion to other companies for key services or products that help them focus on their core business and delegate other functions (Thurm, 2007). The value of IT Outsourcing contracts worldwide was $119 billion in 2004 (Pai, 2007). Without a doubt, outsourcing is a major part of the business strategy that drives organizations to success. Whether at its simplest version of buying raw materials from a large supplier to its most complex variation of offshoring services, outsourcing is present in all business strategies.However, outsourcing strategies are not always successful; therefore it is crucial to understand the factors that influence a firm's outsourcing strategy. In 2004, J.P Morgan Chase & Co. took its main technology functions to be in-house again abandoning a $5 billion agreement and Electronic Data Systems Inc. backed down from a $1 billion deal (Thurm, 2007). Although a few years ago outsourcing was used by some manages as another mean to cut costs, the main reasons for outsourcing have evolved to become more strategy oriented (Pai, 2007).The basis of outsourcing is the same one as the trade theory where two or more parties benefit from the exchange of goods or services. Outsourcing and trade are beneficial for many reasons including cost savings and increase in wealth, but the main reason companies incorporate outsourcing into their business strategy can be explained in terms of comparative advantage.There are three types of functions a business can be divided into: core functions, tactical non-core functions and strategic non-core functions (Pai, 2007). Core functions are the ones that dictate the comparative advantage of the firm; they are the specialized task that makes the business unique and successful. Tactical non-core functions are most commonly outsourced. They are the functions that are necessary components of the core business but do not have a direct impact on the core functions. These are functions like payroll, accounts receivable, accounting, call centers and recruitment.It is important to...

Find Another Essay On Strategic plan outsourcing

Outsourcing and its Effects on Business.

3073 words - 12 pages for a specified time. It involves reassigning a considerable amount of management control to the supplier or the vendor. The primary reason for outsourcing IT jobs is to gain immediate economic gains for the company, usually comes from saving costs which allows companies to be more competitive. The strategic decision to outsource is one that is made by the higher management when they realize that the handling of these operations by another party

The Outsourcing Dilemma Essay

1932 words - 8 pages The Outsourcing Dilemma CIS Strategic Planning Introduction To outsource or not to outsource, that is the question. It is indeed a question that a CIO, CEO, or IT manager is likely to encounter. It is not a simple question, nor is the answer simple, and there is not a one size fits all solution. As with any decision, it is good to face it with facts and without prejudice. This work shall discuss factors that help determine the answer

Sourcing

2016 words - 8 pages the transactions costs exceed the savings in administrative cost. There exists some hidden costs to outsourcing hard to measure but are not less significant. Among them are the social costs within and outside the company, contractual costs, and transition costs. Risk in inherent to all business decisions and strategies and although we try to eliminate risk by human nature, the best bet is to plan ahead and prepare contingency scenarios that

Internal/External Sourcing

1670 words - 7 pages costs to outsourcing hard to measure but are not less significant. Among them are the social costs within and outside the company, contractual costs, and transition costs.Risk in inherent to all business decisions and strategies and although we try to eliminate risk by human nature, the best bet is to plan ahead and prepare contingency scenarios that provide security and less vulnerability to the company in future situations. Almost all the

Outsourcing

2086 words - 8 pages ArticlesLife After Outsourcing by Meredith LevinsonMay 15, 2004 Issue of CIO MagazineHow to Outsource-Proof Your IT DepartmentA New Game Plan by Christopher KochOct. 15, 2004 Issue of CIO MagazineThe Inner Cost of Outsourcing,Sticking with the Home Team, andOne Outsources, The Other Doesn't by Stephanie OverbyNov. 1, 2004 Issue of CIO MagazineYou Can't Outsource Everything by Goeff SmithNov. 1, 2004 Issue of CIO MagazineSummaryOutsourcing is

Outsourcing Plan

1269 words - 5 pages Outsourcing Plan Outsourcing has become the norm in today's business world. Many might argue that outsourcing is not done just because of financial savings and gains, if managed correctly the company can cut labor costs and increased profits. This paper will discuss an offshore outsourcing plan for Riordan Manufacturing that will decrease cost and increase productivity. Riordan has decided to use a new strategy for the company

Outsourcing

2043 words - 8 pages Companies are increasingly outsourcing the management of information technology (IT) for reasons that include concern for cost and quality, lagging IT performance, supplier pressure, access to special technical and application skills, and other financial factors. The outsourcing solution is acceptable to large and small firms alike because strategic alliances are now more common and the IT environment is changing rapidly.Although the mix of

Developing HR Outsourcing Consultants

1658 words - 7 pages . Traditionally these administrative tasks were all the Human Resources Departments’ responsibilities. However, now we see that Human Resources departments have a larger stake in the strategic management of organizations which puts a strain on their relationships with their employees because they are falling short on their administrative duties such as benefits management and payroll. By outsourcing these duties HR has more time to plan for

304KM Individual Assignment RBS Case Study

3407 words - 14 pages available. Aside from storing all the data in the system is being used, the company must act wisely to save data also in other backup systems. Additionally, the company should also have a backup plan just in case of problems and issues such as the RBS happen to them. 2) Investigate more about the third parties If companies are interested and require service outsourcing, companies should investigate in advance of a third party that offers the

Gap Analysis: Global Communications

1172 words - 5 pages Global Communications is facing many problems. Due to high competition in the telecommunications sector, Global Communications stock prices have fallen drastically. Many of its competitors, mainly the cable companies, are offering complete solution packages. Global Communications decided to create a strategic plan to cut costs by outsourcing. This strategic plan has caused issues between Global Communications and the Technologies Workers Union

Global Communication: Situation Analysis and Problem Statement

1180 words - 5 pages the SituationIssue and Opportunity IdentificationThere are several issues that Global Communications need to review before they begin to implement their strategic plan. First, there are several communication gaps that exist from the leadership team to the employees and the union. Second, job and salary issues that will affect the employees when strategic plan goes into place. Another issue will be language barriers due to outsourcing to India and

Similar Essays

Outsourcing Technology Essay

2291 words - 9 pages , it is possible for any outsourcing venture to be successful. The key, however, is not simply to enter into an outsourcing contract because of limited cash flow, which is tempting to most organizations. In order to truly be successful, a company should enter an outsourcing agreement with a strategic plan for what it wants to achieve.Organizations are continuously aiming at attaining, as well as maintaining, a competitive advantage in an industry

Internal/External Sourcing Strategies Paper

1161 words - 5 pages Supply Chain Page PAGE 7 of NUMPAGES 7 Week 4 - Internal/External SourcingISCOM 370 - Strategic Supply Chain ManagementApril 12, 2010Internal/External Sourcing StrategiesOutsourcing customer service has become a more common approach for most companies for many reasons with the most important being cost savings. Outsourcing with a sole focus on the cost of goods has been a short sighted approach as there are many under budgeted, unseen costs

An Assessment Of & A Framework For Successful Offshore Outsourcing

4533 words - 18 pages capable of delivering a competitive advantage.* Outsourcing will also result in loss of expertise in some functions and therefore the consideration of the implications arising from such a development must be incorporated into the strategic planning.* Outsourcing will also throw up opportunities and limitations and strategic plan must be incorporated to exploit the opportunities and limit the drawbacks.* Assessment of the commitment of senior

Harbin: The Capital Of Heilogjang Province In Horthestern China

995 words - 4 pages overall goal to turn the outsourcing sector into an economic powerhouse for China. A steering committee led by a deputy mayor has been formed to oversee service outsourcing in the city. The local government has incorporated into its 11th Five-Year Plan for Social and Economic Development many major policies that will support the service outsourcing industry. These include Preferential Policies on Promoting Development of Service Outsourcing and the