What is Outsourcing? For IB Diploma Business Management course.

What is Outsourcing? For diploma IB Business Management course.
#WhatisOutsourcing? #IBBusinessManagement #EduIgnites
Hello, this is David, reporting from the board room of Voice Tel, an Asian Global Telecommunications Services provider.
Voice Tel is an Asian Global Telecommunications services provider, with global market share around 14 %. Voice Tel offers its own premium handsets. The company offers an excellent value pack for its customers.
Voice Tel’s customers are mostly business travellers who frequently visit different countries within Asian continent.
However, due to globalisation and internet-based voice and messaging services, revenue of Voice Tel has been declining over the past one year. Even market share also decreased.
The top officials of Voice Tel recently met to discuss the current problems and future challenges. The head of operations, Mr Mark pointed out that, we should reduce operating costs by outsourcing some of non-core functions relating to customer service, billing, human resource, accounting, and marketing.
So, students, I have two questions.
Question 1. What is outsourcing?
Question 2. What are its advantages and disadvantages?
Outsourcing also called sub-contracting, is the business practice of hiring a party outside a company to perform services and create goods that traditionally were performed in-house by the company's own employees and staff. Outsourcing is a practice usually undertaken by companies as a cost-cutting measure. As such, it can affect a wide range of jobs, ranging from customer support to manufacturing to the back office.
Companies use outsourcing to cut labor costs, including salaries for its personnel, overhead, equipment, and technology. Outsourcing also helps companies to focus on core aspects of business.
Outsourcing offers many benefits for businesses. Key benefits are:
1. By outsourcing particular tasks, companies are often able to substantially improve performance by drawing on the niche skills of experts in that field.
2. Outsourcing can help get things done a whole lot quicker by passing time-consuming tasks on to freelancers or external agencies.
3. By outsourcing, companies will be able to concentrate core skills on strengthening and improving the core processes that help make business stronger.
4. Outsourcing always going to be cheaper than hiring permanent full time employees. This will greatly reduce cost of recruitment of staff.
5. Outsourcing enables executives to plan and execute more effectively. This gives the business the chance to take new risks and experiment with different methods of exposure.
However, there are few disadvantages of outsourcing.
When a company outsources HR, Payroll and Recruitment services, it involves a risk if exposing confidential company information to a third-party.
Though, non-core operations are outsourced, at times, hidden costs might increase overall cost of production.
Other disadvantages include:
a. Meeting deadline.
b. Quality issues. And ,
c. Ethical concerns.

To conclude, due to emerging globalisation and influence of external factors, global trend towards outsourcing has been increasing to cut down costs and become more competitive. However, a detailed costs and benefits analysis must be carried out, before any function is outsourced.
Please check the descriptions below for questions to discuss.
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Thank you, and happy learning.
Questions to discuss:
With reference to Voice Tel define the term ‘ outsourcing ’. [ 2 marks]
Identify and explain two benefits for Voice Tel of outsourcing their HR and accounting operations. [ 4 marks]
Identify and explain two disadvantages for Voice Tel of outsourcing their HR and accounting operations. [ 4 marks]
‘Outsourcing is the best strategy to reduce cost’. Discuss this with reference to Voice Tel.[ 10 marks]
Acknowledgements:

[suneethshankarpatnaik]

Outsourcing is a cost cutting method for companies where they accord non core operations to freelance agencies outside the company to provide goods and services for the company. This promotes speed and efficiency to focus on core operations and skills

JIRS Bangalore outsources multiple goods such as it’s uniforms from Raymond, United Colours of Benetton Adidas and services such as SUDEXO.

This is a very beneficial step taken by JIRS as it helps in cutting the costs for labour and machines for manufacturing and focus on its core operations such as education

[nirhankarshylakumar]

Another example could be taken from the motorsport world of Formula 1. Smaller competitors such as Williams racing and the HAAS F1 team outsource the engine for their cars from larger teams such as Mercedes AMG and Scuderia Ferrari in order to obtain a competitive advantage over their rivals. 

As the larger teams are specialized and have the resources, they can produce a better engine with minimal opportunity costs, which smaller teams can not achieve. By outsourcing, the smaller teams are not only cutting costs by avoiding heavy investments in R&D, but they also improve the efficiency and performance of the car.

[keshavmanglunia]

Outsourcing is having certain jobs done outside the business premises, so that the firm can use the saved time and resources in various other segments of the business. It even helps in getting specialised service for the job outsourced as the company getting the job might be specialised in the segment. As we see in Jain International Residential School (JIRS), is outsources the uniform manufacturing unit to other firms. Moreover we even see special food producing unit in the school as Sodexo.

[dhruvshah]

Outsourcing is a method used by firms where the firm hires certain specialists from outside the firm who work as freelancers for a certain job. At JIRS, we see that in the form of Sodexo, where Sodexo, the outsider firm, would operate various facets of JIRS

[aaravbafna]

Outsourcing is an agreement in which one company hires another company to be responsible for a planned or existing activity that is or could be done internally, and sometimes involves transferring employees and assets from one firm to another.

Jirs Has outsourced many of its functions from a different group called Sodexo whose job is to maintain the campus and the dining hall.

[nirhankarshylakumar]

Outsourcing is the business practice of hiring a party outside a company to perform services and create goods that traditionally were performed in house by the company's own employees and staff. Outsourcing is a practice usually undertaken by companies as a cost-cutting measure.
Jain International Residential School has outsourced many of its functions from a management service company called Sodexo who take care of the cleaning staff, chefs, sports facility management,  etc for JIRS

[Dankkomedy]

Outsourcing is a way to reduce the operational costs where a firm doesn’t have to set up a department and employ numerous employees they can get it done by freelancers at a comparatively cheap price

The advantages of outsourcing are:
1. It helps a firm to reduce its total costs by not hiring people people on a permanent base.
2. It increases productivity as well as efficiency since when you are outsourcing, you will be giving the work to people who are experienced and spent a good amount of time in that particular field which may lead to increase in productivity and efficiency.
3. Access to skilled employees since when you are outsourcing you don’t need to invest in training and recruiting employees. And also you will be eliminating investment on building infrastructure since it becomes the responsibility of the outsourcing partner.

While the disadvantages are as follows:
1. Lack of control since you may no longer be supervising the people who are doing work for you.
2. Confidentiality risk
Since you can’t completely trust the outsourcing partner as there is always a high chance of data selling and there are problems related to security since many time’s they will be starting the confidential data.
3. Instability of outsourcing partner
As there is always a high chance of outsourcing company going out of business and which may leave the company vulnerable and completely dependant and later may result in serious issues such as bankruptcy.

[aaravbafna]

Advantages -
1. You Get More Experts
2. Things Get Done Fast
3. You’re able to Focus on What Matters
4. You Can Share Some Risk

Disadvantages -
1. You Lose Some Control
2. There are Hidden Costs
3. There are Security Risks
4. You Reduce Quality Control