Required:
You are to take a position- outsource or in-source and justify your position. (3000words)
I actually go for OUTSOURCING.
Reasons are, paying an IT personnel to maintain your website for example would be costly than keeping someone who would be in charge of your site in a contract manner. I mean, there would be a big difference. If you actually go for customization all the time, then you must go insource. But if your budget is limited, outsourcing would be a great deal.So, what is outsourcing? Outsourcing is contracting with another company or person to do a particular function. Almost every organization outsources in some way. Typically, the function being outsourced is considered non-core to the business. An insurance company, for example, might outsource its janitorial and landscaping operations to firms that specialize in those types of work since they are not related to insurance or strategic to the business. The outside firms that are providing the outsourcing services are third-party providers, or as they are more commonly called, service providers.
Although outsourcing has been around as long as work specialization has existed, in recent history, companies began employing the outsourcing model to carry out narrow functions, such as payroll, billing and data entry. Those processes could be done more efficiently, and therefore more cost-effectively, by other companies with specialized tools and facilities and specially trained personnel.
Currently, outsourcing takes many forms. Organizations still hire service providers to handle distinct business processes, such as benefits management. But some organizations outsource whole operations. The most common forms are information technology outsourcing (ITO) and business process outsourcing (BPO).
Business process outsourcing encompasses call center outsourcing, human resources outsourcing (HRO), finance and accounting outsourcing, and claims processing outsourcing. These outsourcing deals involve multi-year contracts that can run into hundreds of millions of dollars. Frequently, the people performing the work internally for the client firm are transferred and become employees for the service provider. Dominant outsourcing service providers in the information technology outsourcing and business process outsourcing fields include IBM, EDS, CSC, HP, ACS, Accenture and Capgemini.
Some nimble companies that are short on time and money, such as start-up software publishers, apply multisourcing -- using both internal and service provider staff -- in order to speed up the time to launch. They hire a multitude of outsourcing service providers to handle almost all aspects of a new project, from product design, to software coding, to testing, to localization, and even to marketing and sales.
In all cases, outsourcing success depends on three factors: executive-level support in the client organization for the outsourcing mission; ample communication to affected employees; and the client's ability to manage its service providers. The outsourcing professionals in charge of the work on both the client and provider sides need a combination of skills in such areas as negotiation, communication, project management, the ability to understand the terms and conditions of the contracts and service level agreements (SLAs), and, above all, the willingness to be flexible as business needs change.
The challenges of outsourcing become especially acute when the work is being done in a different country (offshored), since that involves language, cultural and time zone differences.
RESEARCH & DEVELOPMENT
The competitive pressures on firms to bring out new products at an ever rapid pace to meet market needs are increasing. As such, the pressures on the R&D department are increasing. In order to alleviate the pressure, firms have to either increase R&D budgets or find ways to utilize the resources in a more productive way. There are situations when a firm may consider outsourcing some of its R&D work to a contract research organizations or universities. Reasons why a firm could consider outsourcing are:
• new product design does not work
• project time and cost overruns
• loss of key staff
• competitive response
• problems of quality/yield.
The key drivers for R&D outsourcing are emerging mass markets and availability of expertise in the field. In this context, the two most populous countries in the world, China and India, provide huge pools from which to find talent. Both countries produce over 200,000 engineers and science graduates each year. Moreover both countries are low cost sourcing countries. Other strategic drivers for outsourcing R&D are access to expertise and intellectual property, filling gaps in the capabilities of the R&D function, managing risk better, reducing the time to market, and focusing on the core competence or activities of the firm.
REASONS FOR OUTSOURCING
Organizations that outsource are seeking to realize benefits or address the following issues:
• Cost savings. The lowering of the overall cost of the service to the business. This will involve reducing the scope, defining quality levels, re-pricing, re-negotiation, cost re-structuring. Access to lower cost economies through offshoring called "labor arbitrage" generated by the wage gap between industrialized and developing nations.
• Focus on Core Business. Resources (for example investment, people, infrastructure) are focused on developing the core business. For example often organizations outsource their IT support to specialized IT services companies.
• Cost restructuring. Operating leverage is a measure that compares fixed costs to variable costs. Outsourcing changes the balance of this ratio by offering a move from fixed to variable cost and also by making variable costs more predictable.
• Improve quality. Achieve a step change in quality through contracting out the service with a new service level agreement.
• Knowledge. Access to intellectual property and wider experience and knowledge.
• Contract. Services will be provided to a legally binding contract with financial penalties and legal redress. This is not the case with internal services.
• Operational expertise. Access to operational best practice that would be too difficult or time consuming to develop in-house.
• Access to talent. Access to a larger talent pool and a sustainable source of skills, in particular in science and engineering.
• Capacity management. An improved method of capacity management of services and technology where the risk in providing the excess capacity is borne by the supplier.
• Catalyst for change. An organization can use an outsourcing agreement as a catalyst for major step change that can not be achieved alone. The outsourcer becomes a Change agent in the process.
• Enhance capacity for innovation. Companies increasingly use external knowledge service providers to supplement limited in-house capacity for product innovation.
• Reduce time to market. The acceleration of the development or production of a product through the additional capability brought by the supplier.
• Commodification. The trend of standardizing business processes, IT Services and application services enabling businesses to intelligently buy at the right price. Allows a wide range of businesses access to services previously only available to large corporations.
• Risk management. An approach to risk management for some types of risks is to partner with an outsourcer who is better able to provide the mitigation.
• Venture Capital. Some countries match government funds venture capital with private venture capital for startups that start businesses in their country.
• Tax Benefit. Countries offer tax incentives to move manufacturing operations to counter high corporate taxes within another country.
QUALITY RISKS OF OUTSOURCING
Quality Risk is the propensity for a product or service to be defective, due to operations-related issues. Quality risk in outsourcing is driven by a list of factors. One such factor is opportunism by suppliers due to misaligned incentives between buyer and supplier, information asymmetry, high asset specificity, or high supplier switching costs. Other factors contributing to quality risk in outsourcing are poor buyer-supplier communication, lack of supplier capabilities/resources/capacity, or buyer-supplier contract enforceability. Two main concepts must be considered when considering observability as it related to quality risks in outsourcing: the concepts of testability and criticality.
Quality fade is the deliberate and secretive reduction in the quality of labor in order to widen profit margins. The downward changes in human capital are subtle but progressive, and usually unnoticeable by the out sourcer/customer. The initial interview meets requirements, however, with subsequent support, more and more of the support team are replaced with novice or less experienced workers. India IT shops will continue to reduce the quality of human capital under the pressure of drying up labor supply and upward trend of salary, pushing the quality limits.
Such practices are hard to detect, as customers may just simply give up seeking help from the help desk. However, the overall customer satisfaction will be reduced greatly over time. Unless the company constantly conducts customer satisfaction surveys, they may eventually be caught in a surprise of customer churn, and when they find out the root cause, it could be too late. In such cases, it can be hard to dispute the legal contract with the India outsourcing company, as their staff are now trained in the process and the original staff made redundant. In the end, the company that outsources is worse off than before it outsourced its workforce to India.
PUBLIC OPINION
There is a strong public opinion regarding outsourcing (especially when combined with offshoring) that outsourcing damages a local labor market. Outsourcing is the transfer of the delivery of services which affects both jobs and individuals. It is difficult to dispute that outsourcing has a detrimental effect on individuals who face job disruption and employment insecurity; however, its supporters believe that outsourcing should bring down prices, providing greater economic benefit to all. There are legal protections in the European Union regulations called the Transfer of Undertakings (Protection of Employment). Labor laws in the United States are not as protective as those in the European Union. On June 26 2009, Jeff Immelt, the CEO of General Electric, called for the United States to increase its manufacturing base employment to 20% of the workforce commenting that the U.S. has outsourced too much and can no longer rely on consumer spending to drive demand.
LANGUAGE SKILLS
In the area of call centers end-user-experience is deemed to be of lower quality when a service is outsourced. This is exacerbated when outsourcing is combined with off-shoring to regions where the first language and culture are different. The questionable quality is particularly evident when call centers that service the public are outsourced and offshored.
The public generally find linguistic features such as accents, word use and phraseology different which may make call center agents difficult to understand. The visual clues that are present in face-to-face encounters are missing from the call center interactions and this also may lead to misunderstandings and difficulties.
In addition to language and accent differences, a lack of local social and geographic knowledge is often present, leading to misunderstandings or mis-communications.
SOCIAL RESPONSIBILITY
Outsourcing sends jobs to the lower-income areas where work is being outsourced to, which provides jobs in these areas and has a net equalizing effect on the overall distribution of wealth. Some argue that the outsourcing of jobs (particularly off-shore) exploits the lower paid workers. A contrary view is that more people are employed and benefit from paid work. Despite this argument, domestic workers displaced by such equalization are proportionately unable to outsource their own costs of housing, food and transportation.
On the issue of high-skilled labor, such as computer programming, some argue that it is unfair to both the local and off-shore programmers to outsource the work simply because the foreign pay rate is lower. On the other hand, one can argue that paying the higher-rate for local programmers is wasteful, or charity, or simply overpayment. If the end goal of buyers is to pay less for what they buy, and for sellers it is to get a higher price for what they sell, there is nothing automatically unethical about choosing the cheaper of two products, services, or employees.
Social responsibility is also reflected in the costs of benefits provided to workers. Companies outsourcing jobs effectively transfer the cost of retirement and medical benefits to the countries where the services are outsourced. This represents a significant reduction in total cost of labor for the outsourcing company. A side effect of this trend is the reduction in salaries and benefits at home in the occupations most directly impacted by outsourcing.
QUALIFICATIONS OF OUTSOURCERS
The outsourcer may replace staff with less qualified people or with people with different non-equivalent qualifications.
In the engineering discipline there has been a debate about the number of engineers being produced by the major economies of the United States, India and China. The argument centers around the definition of an engineering graduate and also disputed numbers. The closest comparable numbers of annual graduates of four-year degrees are United States (137,437) India (112,000) and China (351,537).
SOURCES:
http://www.sourcingmag.com/content/what_is_outsourcing.asp
http://en.wikipedia.org/wiki/Outsourcing
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