Operational Outsourcing

The decision to outsource made by an organizational setting based on operational, technological,

and capacity reasons is referred to as operational outsourcing. An entity makes the steadfast
decision to choose the contested approach when technical operations inside an organizational
context are regarded to be lacking and appear to be driven by both quality and cost-oriented
standards. This type of outsourcing is characterized by a lack of awareness of a comprehensive
strategy (Hoff, 2009; Vestre, 2016).

Variable and fractional demand

A small firm's limited internal resources make coping with sudden changes in demand difficult.
Responses to increased demand usually lag demand as new capacity is acquired or new staff is
recruited and trained. Diminished demand may necessitate dismissing loyal staff in whom
training and experience have been invested (Computer Sciences Corporation, 2002

). A vendor may have ample resources. A small organization will not hire half a lawyer but
outsource its legal requirements.

Reduce and control operating costs

Outsourcing reputedly reduces IT costs. Vendors tempt firms by purporting to cut costs by 10‐50
percent (Lacity and Hirschheim, 1993, p. 74). By having expertise and/or up‐to‐date software
and hardware a vendor may be able to build, maintain and/or run an application more cheaply
than can be done in‐house (Collins and Millen, 1995; Lacity and Willcocks, 1998; Lacity et al.,
1996; Loh and Venkatraman, 1992; McFarlan and Nolan, 1995; Willcocks et al., 1995).
McFarlan and Nolan (1995, p. 12) and Quinn and Hilmer (1994, pp. 48‐9) allude to accessing
lower labour costs through international outsourcing.

Concentration on Core Activities and Competencies

Outsourcing allows managers who feel unable to competently manage an IT
function to concentrate on core businesses. It is rational for managers to thereby
exploit competencies based on their experience and knowledge, contract out
activities in which they are less competent and benefit from vendors’ expertise.
Vendors claim they can supply expertise and state-of-the-art technology (Benko,
1993), eliminate problems associated with technological obsolescence (Gupta &
Gupta, 1992), and increase the flexibility and quality of IT services (Antonucci,
Lordi & Tucker, 1998). Vendors generally promise to manage the functions that
cannot add value internally, allowing management to focus on central strategic
business issues (Benson & Ieronimo, 1996; Caldwell & McGee, 1998; DiRomualdo
& Gurbaxani, 1998; Lacity et al., 1996; McFarlan & Nolan, 1995; Pralahad &
Hamel, 1990; Willcocks et al., 1995).

Risk Avoidance
By purchasing services at a fixed cost per transaction, a client can avoid
financial uncertainty. A firm may prefer to contract out transaction processing or
aspects of systems development at an agreed price rather than trying to ascertain in-
house costs, cope with their variations, or expose itself to possible disruptions of its
own system; the firm buys insurance from the vendor. A corollary is that the
vendor’s incompetence may disrupt its client’s business (Benko, 1993). Quinn and Hilmer
(1994) note that the vendor will conceal knowledge of potential disruptions
to service such as possible insolvency. Kern, Willcocks, et al. (2002) describe the
“winner’s curse”: successful bidders for outsourcing contracts stretch and promise
more than they can deliver

Organizational Innovation, Talent, and Effective Resource Management are not Given Enough
Attention.

Continuous reliance on outsourcing might result in a very dangerous situation where the
outsourcer's capacity for innovation, talent development, and resource expansion would
continuously erode (Osei-Annor, 2015; Asamoah-Boadu, 2016). Losing competitiveness in
research and development due to outsourcing (Shah, 2015; Anning, 2012). Companies that
outsource frequently miss out on the chance to stay abreast of technology advancements that
present chances for new product and process innovations (Mirza, 2012; Zhang et al., 2015).

Continuous reliance on outsourcing can lead to a very dangerous situation where the outsourcing
capacity to innovate, develop talent, and expand resources will be continuously eroded. Loss of
competitiveness in research and development due to outsourcing. Companies that outsource
often miss the opportunity to keep up with technological advancements that offer opportunities
for new product and process innovations.

Pilfering of Patent Right

Outsourced companies are more likely to learn how the company operates its patented products,
works, or service procedures (Clott, 2004; Ramanathan et al., 2011). They could employ the
information to start selling the products, works, or techniques (Mirza, 2012; Cirtita & Glaser-
Segura, 2012). Many Asian businesses first entered the American market by getting into
outsourcing agreements with American manufacturers and then aggressively promoting their
brands. Many Asian businesses have acquired market domination in this way (Cirtita et al.,
2012).

Outsourced companies are more likely to find out how the company operates its proprietary
products, work, or service procedures. They could use the information to start selling products,
works, or technology. Many Asian businesses first entered the US market by outsourcing
contracts with US manufacturers and then aggressively promoting their brands. Many Asian
businesses have gained market dominance in this way.

Likely Lack of Core Staff Strength

Some critical employees may feel intimidated by the agreements and dread constant outsourcing
because they may not feel at ease. They might believe that the management will eventually let
them off, thus it makes sense that they would desire to go. According to Tafti (2005), another
reason why an outsourcing deal does not always give a corporation the technological gains it
expects is the loss of talent. Since they may have lost their company's creative minds at that
point, key personnel leaving at that time could have a significant negative impact on
organizational productivity (Sriwongwanna, 2009; Dzogbewu, 2010; Yeung et al., 2006).
Some key employees may feel threatened by agreements and fear having to outsource constantly
because they may not feel comfortable. They may believe that management will eventually let
them go, so it makes sense for them to look forward to leaving. According to Tafti, another
reason why an outsourcing contract doesn't always give a company the technological
achievements it expects is the loss of talent. Since they may have lost the company's creativity by
that time, leaving key personnel at that time can have a significant negative impact on
organizational productivity.

Insufficient or Insufficient Rebuilding Capacity

When a contract ends and the company needs the former staff's services to rebuild, key personnel
leaving may provide a hurdle (Dzogbewu, 2010; Sriwongwanna, 2009). The company would
have to go through the process of rehiring new employees, who might not be familiar with the
company's current operations (Jayaram & Tan, 2010). According to Tafti (2005), when a
company seeks to reassemble a department that was previously outsourced, the loss of personnel
presents significant hurdles for the company.

When a contract ends and the business needs the services of former staff to rebuild, the departure
of key staff can be an obstacle. The company should go through the process of rehiring new
employees, who may not be familiar with the company's current operations. According to Tafti,
when a company seeks to reconstitute a department that was previously outsourced, the loss of
personnel presents significant obstacles for the company.