Globalization has become a leading concept and a vital concept in the business life in the current decades. In his study, Velagaleti (2014) points out that globalization affect the economy, business environment, and the society if various ways that directly or indirectly affects the life and progress of business. For instance, enterprises in the developing countries, as well as emerging markets, are now expanding into the global developed economies while offering talented workforce in various facets of professionalism (Greg Burton et al. 2012. P.152). This paper presents a discussion and evaluation on the need for a business to rely on outsourcing and the management implications impact that a business needs to identify and act upon. The paper as well evaluates the effective procedures that the human resource should ensure is followed in the process of outsourcing.
Irrespective of the market, the resulting impact is a competition where new business enterprises are flexible supply chains while effectively competing with established markets that have deep resources, customer loyalty, and formidable brands. The current market dynamics hence require a higher level of efficiency as well as true expertise within the business. As a result, Hessami and Baskaran (2015) identify reliance on outsourcing as an essential economic strategy and a business necessity that allows business organizations to focus on their key competencies with the aim of remaining competitive in the global business arena. Outsourcing in business refers to the transfer of a business function activity from a customer or a client to either a foreign or a local third party who can provide the service according to Palley (2010, p. 275). These services can be IT services, human resource, sales and marketing, distribution and logistics, supply chain and delivery, procurement, finance and accounting, and customer call center services among others. In an organization, the decision of outsourcing typically relies on the corporate management or senior levels of the organization as it often contemplated as a larger strategic initiative of the organization (Greg Burton et al. 2012. P.152). Reliance on a well-structured outsourcing strategy and practice should lead to more efficient allocation of responsibilities and roles among the relevant stakeholders and can result in a range of benefits for an organization to remain competitive in the dynamic global market. According to the Pricewaterhouse Coopers report, outsourcing services and providers in the global market predict a high demand as every organization is focusing on competency and expert qualification as a necessity to meet the demands of effective performance in the competitive market.
The question hence remains; why are businesses switching towards reliance on outsourcing as a necessary strategy in the current business world? It is a question that every human resource manager needs to know and identify how effective it can be adopted within the organization (Greg Burton et al. 2012. P.152). With continuous research on the better ways to fight the stiff completion and globalization challenges in business, many studies suggest different reasons that make reliance on outsourcing a business necessity. For instance;
Disintegration and Fragmentation of the Supply Chain
In their study, Munro and Stewart (2014) point out that outsourcing opens the way for new competitors in the maker while undermining profitability and pricing power. For instance, outsourcing of manufacturing can only be feasible when it is separated from the other activities within the supply chain such as product development, marketing, branding, distribution, and after-sales services. The same rules apply when it comes to other forms or levels of the supply chain. In other words, outsourcing more and more activities turns the supply chain into a more disintegrated and fragmented process from a single integrated process forming a collection of disjoint and separate activities across several independent subcontractors. However, Velagaleti (2014) denotes that care should be taken as the disintegration and fragmentation can easily open the way for competitors, shorten the life cycle of products, intensify competition, and squeezed retune to the capital invested. It hence requires proper decisions among the human resource management to identify the best strategies to adopt depending on the business.
The Global Changing Nature of the Technical Work
In their study, Christ et al. (2015) denote that technology has brought in service-oriented architecture (SOA) that has been fully adopted in both the developed and developing economies. For instance, web services proliferation and SOA is causing the development of software into smaller units that can easily be mapped in a business process. In most cases, large projects are often difficult to manage and even more complicated in an offshore outsourcing model (De Marchi, Lee & Gereffi 2014, p. 887). On the other hand, it is easier to manage small projects that use service-oriented development applications since they are of lower risks and will deliver better value within a short timeframe that will see the business make a move towards real-time enterprise. Rai et al. (2012) denote that it is for this reason that every business is adopting technology to ensure efficiency, effective, quality, and customer satisfaction as major determinant factors of the business performance in the competitive market. The human resource management is thus able to make effective decisions by accurately mapping the business needs of the organization and making outsourcing very easier, more economical, and profitable for the organization.
Regarding the economies of scale, quality of life, and domestic spending power, employees in both developed and developing economies require proper compensation (Greg Burton et al. 2012. P.154). As businesses globalize and competition becomes stiff, employers are globally forced to offer more compensations and salaries or packages to the employees, majorly those that are based abroad. Employees are paid depending on their roles, skills, and merits. In his study, Jain (2014) denotes that some employers in the emerging markets use comparatively higher salaries in lowering top talents from other emerging markets while employers who do not compensate accordingly are losing their top employees due to the bountiful opportunities mainly for developing economies. It hence requires the human resource managers to refine their hiring models so as to become fully engage the local citizens in the local markets (Desai, Gerard, & Tripathy 2011, p. 150). Some organizations adopt such strategies are they benefit only from services that only locals can provide a deep understanding of the local mindset and markets.
Collective Activism that is Leveling the Playing Field
With globalization, businesses are collaborating hence weakening the top-down control of work and employees leading to the normalization of the regional labor markets (Yang, Wacker, & Sheu 2012, p. 4463). As employees in one organization hear about practices in other organizations, their awareness, and demands for equality is increased thus disadvantaging the economies of the labor force. Organizations are thus forced to outsource for better performing organizations to ensure they adopt workforce programs that are in line with the global peers. Similarly, Cao et al. (2013) point out that the value of consumers and workers in developed economies are promulgating globally thus creating pressure across markets to adopt competitive and safe labor practices. The stiff competition between organizations has also caused pressure for equitable practices thus normalizing business operation programs and narrowing the gap among the regional labor rates (Desai, Gerard, & Tripathy 2011, p. 150). In such circumstance, reliance on outsourcing will enable organizations to aggressively compete by hiring top talents so as to yield a degree of purity in competitive improvement and compensation.
Despite the advantages that an organization can enjoy by relying on outsourcing as a business strategy, Drayse (2011) denotes that outsourcing undermines the relationship of the organization with a third partner such as the local or domestic communities. For instance, shifting jobs and productions overseas have consequences on both sides and often unleash political waves and tidal ideologies that may reverse all the gains from outsourcing reliance according to Jain (2014). The human resource of an organization should realize that people who live in those communities are also not just workers but customers and citizens that the organization directly depends on for its successful performance (De Marchi, Lee & Gereffi 2014, p. 887). As consumers of the organizations’ products, they may decide to boycott the products to cut costs, raise profits, or other personal reasons depending on the relationship between the locals and the organization.
Procedures for Effective Outsourcing Strategy for an Organization
In their study, Munro and Stewart (2011) point out that different businesses and financial institutions outsource business activities, processes, and functions to enable them meet challenges of technological innovations, cost control, increased specialization, as well as heightened competition. However, the organization increases its risk of depending on third parties hence risking its profile. In response, different sector regulators have introduced guidance related to the management towards risk outsourcing (Davidson, Desai & Gerard 2013, p. 42). The guidelines clearly set expectations for federally regulated entities (FRE) outsourcing or contemplating outsourcing their business services or activities to other parties. Levy (2009) denotes that human resource managers should consider these expectations as prudent procedures, standards, or practices that only need to be applied depending on the characteristics of the outsourcing circumstances and arrangements. In this manner, the management of the organization will have the flexibility of configuring their operations in a way that most suits their achievement of their corporate goals and objectives.
Drayse (2011) also denotes that the human resource management need not be constrained depending on whether an activity is outsourced, conducted in-house, or even obtained from a third party. The same study hence identifies that the management of an organization is expected to carry some procedures before deciding on the best way to outsource a service. For instance, the human resource managers need to;
- Develop a process that can determine the materiality of the arrangement
- Evaluate any associated risk with all the proposed and existing outsourcing arrangements
- Refrain from relying on outsourcing strategies towards certain business activities such as external auditing
- Ensure the board of directors within the business, principal officers, and chief agents among other relevant stakeholders receive the sufficient information on the need for outsourcing so that they can discharge their duties towards such a guideline (Yang, Wacker, & Sheu 2012, p. 4463).
The specific expectations of an organizations’ reliance on outsourcing may vary depending on the contemplated nature of the outsourcing arrangement as well as the relationship between the organization and the service provider. In his review, Krieg (2013) recommends that organizations should adopt a risk-based approach to assessing the soundness and the safety of the outsourcing strategy on a much consolidated basis so as to understand any possible risks that may result and contemplate on solutions in the event of their occurrences. Organizations that are well managed in the process of risk assessment will require less supervision on the process of outsourcing the services (Davidson, Desai & Gerard 2013, p. 42). Therefore, as a supervisory process, the policies and procedures of an institution in the assessment of the outsourcing arrangements as well as associated risks should be subject to a supervisory review. The step is to ensure that the outsourcing strategies adopted by the organization will result in a competitive advantage, competency, quality performance, and results.
In his study, Ahlstrom (2016) points out that monitoring and assessment are as well necessary to ensure that the outsourcing arrangement services are delivered in a manner that is expected or in agreement with the contract terms. Monitoring can be formal or regular meetings with the periodic reviews and service providers of the arrangement performance on the outsourcing measures according to Krieg (2013, p. 78). In the process, the service provider will have a significant opportunity to advise the organization in the expected results as well as decide on strategies that be adopted in dealing with any negative impact on the process of service delivery. The review of the material outsourcing arrangement is essential in ensuring compliance with the relevant outsourcing procedures and policies (De Marchi, Lee & Gereffi 2014, p. 887). Since reliance on outsourcing is a regular organization's business plan, the review should occur periodically by the internal audit department of the organization or any other external or internal independent review provider as long as he has the required skills and knowledge required in the process. The human resource should as well retain the overall accountability of the outsourcing arrangement in order to;
- Ensure relevant and effective management control over all the outsourcing organization activities
- Ensure procedures and risk management and outsourcing policies as followed as required
- Ensure that stakeholder involved in risk management for the outsourcing organizational procedures are aware of the expertise required as well as the expected risks for effective decision-making (Yang, Wacker, & Sheu 2012, p. 4463).
- Verify the accuracy and adequacy of the report from the management information
Irrespective of the market, the resulting impact is a competition where new business enterprises are flexible supply chains while effectively competing with established markets that have deep resources, customer loyalty, and formidable brands. The current market dynamics hence require a higher level of efficiency as well as true expertise within the business. As a result, Hessami and Baskaran (2015) identify reliance on outsourcing as an essential economic strategy and a business necessity that allows business organizations to focus on their key competencies with the aim of remaining competitive in the global business arena. However, every business should be careful in following the above strategies to ensure the outsourcing strategies is beneficial and not a disaster to the business.
Reliance on outsourcing is an essential business strategy. It helps in improving the efficiency in business; speeds up product development, cuts cost on business services and production and allow business organizations to focus primarily on their core competencies. For business organizations that have adopted the strategy, it is evident that outsourcing has enabled them to deal with the forces and challenges of globalization effectively through intensification of their competition level, price, and profit margin. For other organizations, relying on outsourcing has made the major different between going out of the business and staying in business. However, it is also evident that reliance on outsourcing for an organization has its consequences as well that needs to be addressed so as to avoid unintended impacts that can turn the business into a tragedy. With stiff competition and globalization in the business arena, reliance on outsourcing should be one of the major ways that should be identified by the organizations’ management. It enables disintegration and fragmentation of the supply chain hence inviting new competitors within the industry, and nurtures corporate complacency. However, care should be taken as the strategy can lead to the organization undermining its relations with the customers, local labor, as well as the local and domestic communities that are as well essential to the effective operation of the business.
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