Strategic outsourcing: Definition, types and benefits

When he isn’t writing, you can find him at the gym, snowboarding, or doing some other sports activities. The minuses of outsourcing are really minor compared to the clear advantages of the service. The delegation of certain functions to a partner means breaking the corporate unity of the company. a firm that engages in strategic outsourcing typically: If the contractor does not bring the desired result, you may incur losses. Here, resources can be working time, efforts, fixed assets, space, money, etc. Thus, outsourcing contracts stipulate that payment for work performed by an outsourced provider will depend on specific results.

a firm that engages in strategic outsourcing typically:

This allows them to generate additional new ideas and innovation compared to relying solely on the internal and domestic knowledge and skills. In summary, the global innovation outsourcing strategy suggests that firms leverage the breadth of external knowledge sourced from third-party service providers located in various locations to enhance their innovation. The resource-based view (RBV) has been extensively used in international business (see Peng 2001) and, more specifically, outsourcing and offshoring literature to explain firms’ decision on which activities can be disaggregated and outsourced. The concept of core competencies is among the most powerful frameworks researchers draw on to explain why a particular activity in a value chain can be disaggregated and dispersed to be performed in other locations (e.g., Gilley and Rasheed 2000; Teng et al. 1995). A clear administrative separation along a value chain emerges as an activity and information become standardized, and coordination across value chain activities is simplified (Jacobides 2005; Richardson 1972).

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A lack of communication between the company and the outsourced provider may occur, which could delay the completion of projects. Outsourcing gives you access to the latest technologies and professional skills that can be leveraged to benefit your business. If you would like to learn more about strategic outsourced services, contact the OMI experts today to get specific answers for your business. We are happy to lead you through the best strategic outsourcing examples and determine a solution that perfectly suits your needs. The primary purpose of strategic outsourcing is to use external resources in the best way by leveraging the latest technologies and industry trends, along with a high level of expertise to improve the efficiency and competitiveness of the company. Freeing up resources to maneuver them to tackle more pressing or vital problems allows the company to achieve better results in its main activity.

  • As the study’s environment is adjusted in future studies, the results for Western areas and other Asian countries (aside from China) may shift.
  • In summary, the efficiency-seeking strategy suggest that firms source only a limited set of activities in their value chain (mainly their non-core activities) but disperse their activities globally across locations where such activity can be performed more cost efficiently.
  • Warren Buffett’s Berkshire Hathaway has long enjoyed strong performance by purchasing companies and improving how they are run.
  • In doing so, this study provides a more nuanced and realistic picture of the causal mechanism underlying high performing global sourcing.
  • The reader can see how important organizational competencies are in supporting the relationship between strategic human resource outsourcing and long-term organizational viability.
  • Companies should always prioritize the specialized skills they’re looking for when developing a comprehensive outsourcing strategy.
  • Strategic human resource outsourcing was also found to play a significant effect in shaping organizational capacities and human resource proficiency, according to the study.

In addition, Mishra et al. (2018) identified six characteristics that a corporation must examine while outsourcing. Dependence concerns, contagion consequences, confidence, comparative proficiency, strategic capabilities, and dedication vs. flexibility are all examples of these. Few researchers believe that the potential of HR to add a competitive edge is a factor in deciding to choose whether or not to outsource HR operations (Papageorgiou, 2018). The proficiency required of HR professionals is totally different from all those previously identified with HR.

Criticism of Outsourcing

This makes it nearly impossible for companies to grow and develop all the business departments and stay 100% self-sufficient. Being one of the most highly paid jobs in the world, it is far less expensive for companies to outsource a third party IT team, as compared to building an in-house one. While most smaller companies often outsource the entire IT activities, enterprises often outsource a portion of IT functions, such as data management, customer support, etc. But even with those stats, in our decades long experience we’ve seen many businesses hesitate about whether or not they should do outsourcing. And while it’s common knowledge that not all outsourcing stories are success stories, at OMI we believe that strategic outsourcing is something that is at least worth considering.

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And since roughly 65% of businesses fail within the first 10 years, often due to poor cash flow management, some business leaders have adopted a different perspective. To help you determine whether outsourcing is the right fit for your business, I’ll discuss some of its benefits, situations where outsourcing might not be the best choice and tips for outsourcing effectively. According to Freeze and Kulkarni (2007), organizational capability is linked to concrete knowledge assets.

Exploring the reshoring and insourcing decision making process: Toward an agenda for future research

The first group of firms employs the efficiency-seeking strategy in their global sourcing, which focuses on sourcing of a limited number of activities in their value chain (low degree of disaggregation) but from various locations across the globe (high geographical dispersion). More specifically, Configuration 1a and 1b indicate that global sourcing configurations delivering high cost savings combine the absence of high degree of disaggregation (i.e., a small number of functions being offshored) and the presence of a high degree of geographical dispersion. This is consistent with the RBV argument suggesting that firms should focus their limited resources and capabilities on their core activities (Barney 1999; Quinn 2000). This difference suggests that firms can achieve a high cost savings with either high or low cultural dispersion in their global sourcing activities, but this choice needs to be strategically aligned with other factors, such as a level of control in this case.

We employ Hedges–Olkin-type meta-analysis (HOMA) technique, and meta-analytical regression analysis (MARA) to test our hypotheses. The term outsourcing is often used interchangeably — and incorrectly — with offshoring, usually by those in a heated debate. But offshoring is a subset of outsourcing wherein a company outsources services to a third party in a country other than the one in which the client company is based, typically to take advantage of lower labor costs. This subject continues to be charged politically because offshore outsourcing is more likely to result in layoffs. Every company strives to stay on top of the competition but no business can be an expert at everything.

Maintenance outsourcing and safety. Case study of disorganization phenomena in a reticular organization

EBay’s acquisition of PayPal signaled to potential customers that their online transactions were completely safe—eBay was now not only the place where business took place but eBay also protected buyers and sellers from being ripped off. Horizontal integration refers to pursuing a diversification strategy by acquiring or merging with a rival. The term merger is generally used when two similarly sized firms are integrated into a single entity. In an acquisition, a larger firm purchases and absorbs a smaller firm.

Strategic outsourcing is the perfect solution to help companies optimize business processes and see immediate benefits. In this article, we will explain strategic outsourcing and what value it can bring to your company. It implies the transfer of internal business processes to an external contractor.

Co-evolution of institutional and organizational factors in explaining offshore outsourcing

The results revealed that both of the mediators helped in achieving organizational sustainability through strategic human resource outsourcing. The results are supported by the findings of Taponen and Kauppi (2020) who hinted at the role of human resource strategic outsourcing in acquiring organizational sustainability through organizational capabilities. The results also got support from the findings of Patel et al. (2019) who emphasized the role of HR proficiencies in achieving organizational improved performance contributing to the sustainability of the organizations. Moreover, this research also focused on finding the mediating roles of organizational capabilities and the human resource proficiencies between strategic human resource outsourcing and organizational sustainability.

a firm that engages in strategic outsourcing typically:

The solution table from the fuzzy set analysis shows four global sourcing configurations leading to high cost savings with consistency ≥ 0.80. We note that the presence of four configurations leading to high cost savings points to equifinality of solutions—more than one possible configuration or path leading to the same outcome. All four configurations have high overall consistency (0.837) and high coverage (0.632). Based on the overlapping characteristics of the configurations, we identify two main groups among these four global sourcing configurations leading to high cost savings.

The impact of offshoring on knowledge-intensive services: A study of activities in service production processes

The findings of this study revealed the importance of organizational responsibility in utilizing the processes and technology provided by the organization as a framework for developing a personally liable human resource to support the knowledge in an organization. OC also gives an insight into the equipment and procedures required to effectively improve the organization’s knowledge ability. This study also discovered that five managerial capabilities (skills, acquisition, procedures and policies, statistics, and information documentation) had a strong link with the particular sequence in the organization’s business (Freeze and Kulkarni, 2007).

a firm that engages in strategic outsourcing typically:

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