Outsourcing Business Functions in Australia-Samples for Students

Question: Discuss about the Advantage and Disadvantage of Outsourcing Business Functions. Answer: Introduction Outsourcing business functions denotes subcontracting some non-primary business functions and activities to third part contractor or provider. Organizations mostly outsource some parts of their business like payroll, accounting, human resource, information technology, customer service and many more (Gerbl et al., 2015). While business process outsourcing (BPO) is related to any contractor outside of the country, it is known as offshore outsourcing. On the other hand, business process outsourcing, which is contracted with domestic party, is called nearshore outsourcing. Outsourcing business functions help organizations in freeing up some of their time and they can better focus on their core organizational functions within that time (Lacity Willcocks, 2014). However, outsourcing business function can cause security risk for an organization, as important organizational information needs to be shared with third party contractors. This literature review will primarily focus on the advantages and disadvantages of outsourcing business function99s. Moreover, the literature review will also focus on the trends of BPO in Australia. Apart from that, different models of outsourcing business functions will also be described in this literature review. Furthermore, some effective ways of outsourcing business functions will also be discussed in this literature review. Project Objective To explore the trends of outsourcing business functions in Australia To recognize the advantage of outsourcing business functions To assess the disadvantage of outsourcing business functions Project Scope The scope of the project is to identify the impact of outsourcing business functions on business performance. The scope of the literature review also extends its limit towards analyzing the trends of outsourcing business functions. The trends of outsourcing business functions will encourage the organizations towards more business process outsourcing for increased business flexibility. Apart from that, the literature review will also provide huge information regarding the advantage of outsourcing business functions. Furthermore, the information provided regarding the disadvantage of outsourcing business functions with help organization in taking preventive actions. Moreover, the information provided about the effective ways of business process outsourcing will encourage the organization towards operating perfect business process outsourcing. Literature Review Concept and impact of Outsourcing Business Functions Outsourcing business functions or business process outsourcing is defined as the subset of outsourcing, which involves contracting of specific organizational operations or activities to a third party provider. Moreover, this third party organization performs the outsourced jobs on behalf of the main organization. Therefore, it can save time for the main organization towards concentrating on their core organizational activities and enhance business effectiveness. Business process outsourcing can be categorized two categories namely back office outsourcing and front office outsourcing. According to Chou et al., (2015), back office outsourcing offers the organizational services like data management, data entry, payment processing, accounting service, survey and quality assurance. On the other hand, Liu and Deng, (2015) opined that front office outsourcing always deals with customer interactions. Moreover, front office outsourcing deals with the business functions like telemarketing, technical support, market research, inbound/outbound sales, customer support and others. Organizations can enhance the speed and efficiencies of their business process through sharing some of their organizational functions with third party provider. On the other hand, Rekik et al., (2015) opined that outsourcing is the practice used by several companies towards reducing their organizational cost through transferring some of their work to third party provider. Trends in Outsourcing Business Functions in Australia Organizations in Australia are joining the global rush of outsourcing. With the proliferation of the professionals doing freelancing and third party service providers, business process outsourcing is becoming more accessible to even small companies of Australia. Over the past few decades, outsourcing business functions has become an increasingly growing business trends. According to Lacity and Willcocks, (2013), the global market for BPO has been projected to reach US$262.2 billion by the year 2022. The availability of new generation technologies like process automation, cloud services, big data analytics has helped in effective operations of business process outsourcing. On the other hand, Tjader et al., (2014) opined that Australia has been considered as the largest market for business process outsourcing in the year 2016. The BPO of Australian organizations have been projected for $4.6-Billion. While considering the evidence from Telstra, it has been found that the organization ha s outsourced more than 500 jobs to Philippines. On the other hand, Luo et al., (2013) opined that NAB of Australia has decided to send more IT jobs in India. Figure 1: Business Process Outsourcing Trend (Source: Eshuis et al., 2015) From the above figure, it is evident that business process outsourcing is rapidly increasing in Australia as compared to other countries. Most of the manufacturing, accounting and telecommunication companies have started to outsource their non-core business functions to other third party companies for saving the organizational cost. Furthermore, the Australian organizations mostly outsource their business functions to Philippines, India and China. Advantage of Outsourcing Business Functions Cost Advantage Cost advantage is the most visible and obvious benefits associated with outsourcing of business functions to other third party provider. In outsourcing, organizations outsource a complete business function to the third party. Therefore, the organizations do not need to pay the employees for this particular business function in their own organization. It actually saves organization organizational cost. On the other hand, Gunasekaran et al., (2015) opined that organizations can outsource their business functions to such countries, where wage is quite lower than their own. In this way, low wage of the employees can actually save organizational cost. While considering the example of Telstra, it has been found that the organization has saved also 60% of their organizational cost through outsourcing their business functions to India and Philippines (Teo Bhattacherjee, 2014). Access to Skilled Resources Organizations mostly outsource their business functions to those vendors, who are actually specialized in their fields. According to Liu et al., (2015), the outsourcing vendors are mostly equipped with technical experts and specific equipments. Therefore, organizations can get best talented and specifically skilled employees for performing the specific business functions through outsourcing business functions. On the other hand, Schoenherr et al., (2015) opined that organizations no longer need to invest in recruitment and training service for the function, which they outsource to third party vendor. Moreover, the organizations can get wide pool of talented and skilled employees in outsourcing organization, which can reduce their recruitment cost. Increased Efficiency and Risk Sharing According to Maley et al., (2015), the third party vendors have wide pool of especially skilled employees for performing any specific task. Therefore, they can better control and perform the specific business functions outsourced to them by the main organization. In this way, the outsourcing business functions actually enhance organizational efficiency. On the other hand, Gorla and Somers, (2014) opined that the specialist vendors of the outsourcing companies can also reduce and share the organizational risks of the main organization. Save on Technology and Infrastructure Business process outsourcing saves the cost of the technology and infrastructure of organizations. According to Oshri et al., (2015), organizations need not purchase and adopt separate technological equipments for performing the specific function, which they outsource to other third party vendors. Outsourcing organizations are effectively equipped with specific technology, which eliminated the needs of main organizations to invest in technology and other infrastructure. Concentrate on Core Business Areas According to Han and Mithas, (2013), business process outsourcing actually frees up time and energies of the organizations and enables them to be more concentrated on their core business areas. In this way, they can invest more time and money to their research and development department for launching innovative product and service development. While considering the example of Westpac, the organization has outsourced its human resource functions to Genpact. Moreover, Genpact is committed to supply human resources to Westpac in their areas of learning and development. Time Zone Advantage Apart from getting cost advantage, the organizations can also get time zone advantage from outsourcing their business functions. According to Runar Edvardsson and Durst, (2014), organizations can get the benefit of time differential between their own country and the country in which they outsource their business functions. Moreover, the organizations can get their project done from the vendor organization even when they are closed for the day. Rekik et al., (2015) stated that the organizations can actually get the delivery of their project on exact time through outsourcing business functions. It can actually add to the value proposition of the organization. Faster and Better Service The expertise knowledge of the employees in the outsourcing organizations offers better business functions with high quality deliverables. As per Luo et al., (2013), the employees of the outsourcing organizations incorporate their special skills and knowledge in the business functions. Therefore, the organizations can always get delivery high quality business deliverables through outsourcing business process. Disadvantage of Outsourcing Business Functions Lack of Managerial Control According to Schoenherr et al., (2015), organizations face lack of managerial control on their outsourced business functions. With the outsourcing of business functions of an entire department, organizations also turn the managerial control to the outsourcing companies. Moreover, the managerial control of the business functions belongs to outsourcing companies. Oshri et al., (2015) pointed out that outsourcing companies are not driven by the same standards and mission of the main organization. Therefore, the products and service delivered by the outsourcing company may not meet the organizational standards of the main company Hidden Cost According to Han and Mithas, (2013), paying to the outsourcing companies seems to be additional cost of the organizations. Moreover, outsourcing companies cover the details of the business functions, which the main organizations sign during the contract. Anything not covered in the contract may cost additional charges to pay by the organizations. Furthermore, Tjader et al., (2014) opined that outsourcing business functions may also associated with legal expenses for the organizations, as they need to retain a lawyer for reviewing the contract to sign. Threats of Security and Confidentiality The life blood of the any organization is its important and secure information. In business process outsourcing, organizations need to share the information regarding payroll, medical records and other confidential information. There is a potentiality of the information to be misused by the outsourcing organization (Eshuis et al., 2015). Therefore, there is obviously the threat of the security and confidentiality associated with business process outsourcing. Quality Issue The outsourcing companies are mostly motivated by profit and the contract is only fixed by price. Therefore, the only way for the outsourcing companies to increase profit is to decrease the expenses. Moreover, the outsourcing organizations frequently charges extra pay for accommodating with any changes in the business requirements (Maley et al., 2015). In any case, the organization refuse to pay extra, the outsourcing organization reduce the quality of the business deliverables. Model of Outsourcing Business Functions There are five most widely used models for outsourcing business functions. According to Lacity and Willcocks, (2014), global delivery model, which is also known as blended outsourcing, combines resources such as onshore and offshore, onsite and offsite. This model helps in reducing labor costs by meeting predetermined values. Liu and Deng, (2015) highlighted that hybrid model or dual-shore model combines both onshore and offshore services where both outsourced team and clients communicate directly. Though such model workload is shared according to 4:1 (onshore: offshore). Furthermore, Eshuis et al., (2015) pointed out that offshore multisource model is the most appropriate for offshore operations. This is because through such hub and spoke model, multi-source suppliers are contacted simultaneously in real time basis. Other outsourcing vendors are also contacted simultaneously, however the business framework becomes more complicated and are more cost-effective, which is why it is more adopted by large scale manufacturing enterprises. Considering the viewpoint of Gunasekaran et al., (2015), Build Operate Transfer or BOT Model is used by clients who offshore operations through foreign subsidiary. The major advantage is that business operation ownership needs to be transferred to client enterprise after the period of operation and within the period entire cost of operation will be beard by offshore company. Finally, while considering the viewpoint of Gorla and Somers, (2014), it can be highlighted that Global Shared Services is the only model that is the combination of captive centers considering both onshore and offshore activities. With the help of specified budget, client company responsibilities are shared and run independently. Effective Ways of Outsourcing Business Functions Consider Relevant Provider Organizations should look at all the proficient outsource service providers in the market. Moreover, the organizations should evaluate all the outsourcing companies based on their business requirements. The outsourcing organizations should be evaluated based on their track record on their performance. In this way, organizations should select the best outsourcing companies, which can provide best quality service and even can adopt with the changing business requirements (Han Mithas, 2013). Understanding Business Objectives and Proper Documentation Organizations should make sure every part service level agreement is properly documented and nothing has left undocumented. Moreover, the paperwork should be comprehensive enough and delineate responsibility and accountability. Proper documentation is extremely useful for avoiding for avoiding the legal complications in the business functions outsourcing process. Tracking Performance Review Organizations should periodically review the performance of the outsourcing organization. Moreover, the organization should ensure that the outsourcing organizations are progressing with the business functions as per the organizational standard and mission. In case of any shortfall, the organizations should ensure that the shortfalls are rectified as soon as possible (Maley et al., 2015). It will ensure the quality of the service provided by the outsourcing companies. Regular Communication Organizations should maintain regular communication with the outsourcing service providers. Moreover, the organization should conduct regular conference calls with the service providers and raise the issues, clarification and explanation for the functions (Runar Edvardsson Durst, 2014). In this way, they should also check the progress of the functions. Gap of the Literature The above literature helped in understanding the advantages of outsourcing business functions however, the disadvantages were not completely explored by the authors. The reason might be due to the presence of various business models however none of the outsourcing models found to be exemplary for one particular business. It has been also evident that authors never provided any concrete recommendation for appropriate business outsourcing. There might be various advantages but the procedures for reducing challenges were never realistic. Therefore, in future finer advantages of business process outsourcing needs to be achieved and described through data collection using both primary and secondary approaches. Conclusion While concluding the study, it can be said that outsourcing business functions allows the organizations in freeing up some time and energies. The organizations can use such freed up time and energies in concentrating on the core business functions for developing their brand value in the market. Outsourcing business functions actually saves the organizational cost and time though assigning some functions to other third party service provider. Moreover, organizations can also avail wide pool of expertise and talented employees for performing their business functions effectively. 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