NAME: M.

Razee Qureshi

Class: TYBms B

Elective: Human resource

Topic: A study on why companies

should go for outsourcing
Introduction
Outsourcing is defined in this study as the
organizational practice of contracting for
services from an external entity while retaining
control over assets and oversight of the services
being outsourced.
The practice of contracting for, or outsourcing,
services by industry and government is not
new.
The federal government, for example, has
contracted with the private sector for facilities
acquisition services, including planning, design,
and construction services, for more than a
century.
In the 1980s, however, a number of factors led
to a renewed interest in and emphasis on
outsourcing. For private-sector organizations,
outsourcing was identified as a strategic
component of business-process “reengineering”
designed to streamline their organizations and
increase their profitability.
In the public sector, growing concern about the
federal government's budget deficit, the
continuing, long-term fiscal crisis for some
large cities, and other factors led to efforts to
restrain the growth of government
expenditures and accelerated the use of a wide
range of privatization 1measures, including
outsourcing for services (Seidenstat, 1999).
management, time, and staffing constraints. The
goal of reengineering is to increase profitability
by becoming more competitive and significantly
improving critical areas of performance, such as
quality, cost, delivery time, and customer
service.
The underlying premises of reengineering are:
(1) the essential areas of expertise, or core
competencies, of an organization should be
limited to a few activities that are central to its
current focus and future success, or bottom
line; and
(2) because managerial time and resources are
limited, they should be focused on the
organization's core competencies. The purpose
of reengineering, then, is to streamline
organizations by focusing on the core
competencies required for them to compete
successfully in the marketplace. Additional
functions may be retained by the organization,
or in-house, to keep competitors from learning,
taking over, eroding, or bypassing the
organization's core competencies (Pint and
Baldwin, 1997).

For private sector organizations, core

competencies may be skills that are:
(1) difficult to duplicate;
(2) create a unique value;
(3) constitute the organization's competitive
advantage (i.e., what it does better than anyone
else). Core competencies have been also been
defined as a “bundle of skills and technologies
that enable a company to provide a particular
benefit to customers” (Hamel and Prahalad,
1994). For example, at SONY, the benefit is
“pocketability, and the core competence is
miniaturization,” whereas at Federal Express,
the benefit is on-time delivery, and the core
competence is logistics management (Hamel
and Prahalad, 1994).
As part of business-process reengineering,
support services required by the organization
that are not core competencies can be
outsourced to external organizations that
specialize in those services. Ideally, by
outsourcing noncore functions, an organization
receives the best value or best performance for
the resources expended. Surveys by the
Outsourcing Institute (1998) have found that
private-sector organizations outsource
functions for the following primary reasons:
 Improving organizational focus. By
outsourcing noncore activities or
operational details to an outside expert,
an organization can focus its in-house
resources on the development and
enhancement of its core competencies.
 Gaining access to world-class capabilities.
By partnering with an outside entity that
has access to new technologies, tools, and
techniques, an organization can gain a
competitive advantage without making a
substantial capital investment.

 Sharing risks. In an environment of

rapidly changing markets,
regulations, financial conditions, and
technologies, an organization can
reduce risks by sharing them with
external entities.

 Reducing and controlling operating

costs. By contracting with a provider
that can achieve economies of scale or
other cost advantages based on
specialization, an organization can
 reduce and control its operating
expenses.

 Accelerating reengineering benefits. By

outsourcing a process to an external
entity that has already reengineered its
business processes to world-class
standards and that can guarantee the
improvements and assume the risks of
reengineering, an organization can
realize the benefits of reengineering in
less time.

 Shifting capital funds to core business

areas. By reducing the need to invest in
capital (building) projects or
technologies by outsourcing for them, an
organization can redirect capital funds to
its core business activities.

 Smoothing out workloads/matching

personnel to the volume of work. At
times of peak business activity, an
organization can contract for personnel
and other resources to handle peak or
unique workloads and to meet the
demands of multiple projects or shifting
workloads and reduce the disruptions
and costs associated with hiring and then
laying off “permanent” staff.