Over address non-financial factors in the overall consideration.

Over the years,
outsourcing has been employed by business managers in various industries across
the world, with the intention to have the edge in this ever-changing business
environment. By its very definition, outsourcing is the business practice when the
firm partly transfers its own tasks or processes to an outside source to improve
business efficiency. Machogu, Wanjala, Otieno and Kibe (2017), in their work
indicated that firms may capitalize on outsourcing to reduce cost and become
more competent in their core business, which has been now considered a strategic
human resource approach in such competitive business world. There is evidence
showing that outsourcing practice has the potential to achieve performance
enhancement, however, it does not serve business without being challenged. As outsourcing
become more and more popular in the modern business, every factor of the
process must be taken into consideration in order to optimize business
performance. Hutchins and Gould (2004) referred to risk management in
outsourcing as a key competitiveness differentiator for a successful
outsourcing implementation. Zhu, Hsu and Lillie (2001) implied that a decision
making process in outsourcing a function should address non-financial factors
in the overall consideration. This essay will provide a broad perspective to
identify relevant qualitative factors from a manager’s point of view in a
make-or-buy decision.

When it comes
to dealing with other parties, like many other business decisions, the intrinsic
and extrinsic factors of a business partner are among top priorities to be
taken into account. In the outsourcing relationships, the well-being of a
company is strictly tied to the operational and financial status of the
outsource provider, thus, one should evaluate the provider’s quality of
management as well as financial stability to ensure its technical competency. It
is also in the interest of the company that provider’s business attributes
including its experience, reputation, creditworthiness are critically analysed,
as the lack of consistent control may prove to be costly in the long run.
Machogu (2017) implied that the quality of resources, and subsequently outcomes
in many outsourcing practices might be compromised as the outsourcing provider
may perform its obligations with profit-seeking motivation. According to Shukla
(2010), the risk of the supplier underperforming their obligation will force
firms to adjust the outsourcing strategy, which urges the manager to evaluate
the supplier’s capability to adapt to changes in demand by adjusting production
level.

We Will Write a Custom Essay Specifically
For You For Only $13.90/page!


order now

 The mutual understanding of the outsourcing
implementation plays a significant role in its success. Embleton and Wright
(1998) indicated that for outsourcing, a mutually beneficial deal should be
negotiated and the agreement must be at their comfort. Deckelman (1998)
described outsourcing as contract intensive by their nature and argued that it
is the responsibility of both parties that the contractual document are mutually
understood about the strategic relationship. There is always the possibility
that either or both parties are not operationally prepared to proceed with the
implementation. The process of outsourcing may vary with subjective point of
view of both client and supplier, resulting in the uninformed views about the
procedure. Lewis and Radmore (2012) in their work indicated: “The service
description must be prepared in a logical manner, be sufficiently detailed to
include firm’s requirement, describe the scope of the services and define all
relevant definition to ensure a mutual understanding of these” (p. 12). Thus,
the negotiation process is crucial for an effective long-term outsourcing
partnership.

“Regardless of
how the task or process is being handled currently, outsourcing must be managed
differently, often requiring new management skills”, (Embleton and Wright,
1998, p.10). It is essential that manager properly consider the adaptability of
firm to changes in management structure as well as effectively manage knowledge
transfer and training process. Zhu, Hsu and Lillie (2001) identified
outsourcing as a top management issue, while Embleton and Wright (1998)
expressed that the policies and procedures should be modified to sustain
employee productivity and consistency. Restructuring the management system in
compliance with the outsourcing implementation is crucially important to avoid
overlapping and redundant processes, which necessarily results in business
inefficiency. Staff transition and allocation for outsourcing should also be
appropriately managed as Zhu, Hsu and Lillie (2001) mentioned the complexity of
the process due to economic, legal and social impact on both parties.

 Outsourcing, by its nature, almost always
means job eliminations, which can have negative effects on morale, loyalty and
productivity among remaining employees. According to Shukla (2010), layoff may
result in unstable morale among the “in house survivors”, leading to
distraction, dissatisfaction and inefficiency. Embleton and Wright (1998)
viewed the human aspect in the context of outsourcing as often overlooked. Questions
regarding outsourcing will create a confusing atmosphere in the workplace with
a sense of insecurity among employees. Subsequently, rumours and speculations might
cause a breach in the employer-employees relationship. Noer (1996) indicated:
“Business with a high morale factor have a competitive edge over other
businesses… It is an intangible feeling transmitted form each employee to every
other employee and to the customer”, (p.16), while Nanvran Assoc (1996) implied
that an appropriate policy for communicating an outsourcing strategy is a key
to a successful transition.

There is no
denying the fact that firm which outsources may have greatly reduced control
over part of the business. As a result, there is the risk of compromising
sensitive information of a firm, which may lead to losing competitive advantage
or being exposure to business risk. Outsourcing process, therefore, should be
accompanied with the information sensitivity being under control at the highest
level. Gilley, Greer and Rasheed (2004) argued: “A firm could be vulnerable if
it outsources its executive compensation function and confidential information
is leaked to competitors that may then conduct raids on its executive talent”,
(p.234). Shukla (2010) included the risk of service provider accessing firm’s
confidential information in an outsourcing partnership, which might include the
potentially personal information about customers and employees, posing enhanced
security risks. Lum (2004) indicated that breach of confidentiality may happen
when outsourcing and the obligation of those who are responsible for the
integrity of sensitive information must be clearly stated to both parties.

In business
partnership, the relationship and commitment of both sides play a key role in
the success of the plan. As for outsourcing, there exists a commercial
relationship between two sides, which may lead result in corporate clash. It is
followed by the unwillingness to adapt to changes and the resistance to the
process, whether intentional or not, leading to performance monitoring and
measuring processes not being able to fully represent the effectiveness of
outsourcing. The lack of participation and communication in such case will be
costly in the long term. Lacity and Willcocks (2017) argued that commercial
conflicts are the most daunting challenge for a successful outsourcing
implementation as the relationships in this context based on commercial
grounds. Thus, resolving conflicts between the two parties is crucial in realizing
the long term strategic benefit of outsourcing.

With the rise
of conscious customers who pay a great attention to the ethical practices of
businesses, manager need to consider the reputation of the firm in an
outsourcing deal, based on how public would respond to it. With the inevitable
lack of control from the client, suppliers may practice environmentally
damaging processes or even involve in illegal activities. The process of
outsourcing, which is based on specific expertise and cost advantage, in many
cases has been deemed morally wrong. Over the years, there have been many
implementations exploiting the low wages and poor working condition in
developing countries. Nike Sweatshop throughout the 1990s is the case in point,
when the sport giant was criticised for practicing and had to lay-off staff by
1998, witnessing declining sales and stock price. (theguardian).

Another
important factor need to be considered thoroughly is the question regarding the
business strategy of the manager, which relates to the sustainability of the
firm in the industry. Kotabe (1992) argued that the increasing dependence on
outsourcing may eventually result in innovation being diminished. Empleton and
Wright (1998) in their work suggested that by selling a potentially strategic
resource in the process of outsourcing, firms may witness opportunity loss in
the long run.