Please find the attached literature review, you need to follow this literature review in order to complete Research Proposal Task 2 and Task 3 Please go thorough with the attached files to understand
Advantages and Disadvantages of Outsourcing Business Functions
Student’s Name
Muhammad Sabih Shehzad
DY30571
Instructor’s Name:
Amali Ediriweera
Date:
28/04/2018
Introduction
Outsourcing is a major business activity and in the contemporary world the visibility of businesses outsourcing more so in Business Process Outsourcing and Information Technology. However, outsourcing has been defined in a variety of ways by different scholars but the most relevant have been adapted for the case of this study.
According to Henry (2008), Information Technology Outsourcing referred as the practice of contracting out or selling the organization’s IT assets, activities and people to get monetary gains from third party supplier over particular period of time. When the definition above can be connected with Human Resource Outsourcing with employees into account outsourcing by a third party investor. Greaver (1998), defined outsourcing as the act of getting business services from an external source. Based on Penrose (1959), definition, outsourcing is refers to purchasing ongoing services from an external company which currently provides, alternatively the firm normally provides for their own.
Project Objectives
Project objective of this research is to explain advantages and disadvantages of business outsourcing. This is by explaining further and also providing with various examples. Also, analyzing outsourcing practices of Kazakhstan banks which is an example outsourcing company is another objective of this project. I will then give analyses and the results which are being provided by several researchers about the outsourcing practices of Kazakhstan banks.
Project scope
Different perspectives on the definition of outsourcing, types of outsourcing such as information technology (ITO), business processing outsourcing(BPO) and human resource outsourcing (HRO). The advantages and disadvantages of outsourcing have also been addressed along with the results which were found in the research about HSBC Bank Kazakhstan.
Project GAP
Although authors have given out advantages and disadvantages in business outsourcing, they have they have not given out recommendation on what to do so that can avoid these disadvantages.
Literature review
Types of outsourcing
Outsourcing has many words with the same meaning such as out tasking, consulting, off shoring as well as contingent workers. According Lacity and Willcocks (2001) out tasking which is sometimes refers to subcontracting is practice of employing an outside service provider for a short period f time to supplement the resource available such as in designing and training the workforce in a certain area of expertise. In consulting, the information regarding how to do is presented to an organization while outsourcing provides the workforce who would do the job however the two terms cannot be distinguished in Business Process Outsourcing as the consultancy is within the firm (Urquhart, 2002). Off shoring refers to the outsourcing beyond the border, international outsourcing (Urquhart, 2002).while contingent workers is the practice of securing workers from another firm through a Human resource chain supply firm (Lacity& Willcocks, 2001). The definitions above are relevant in a particular set of situation that was relevant to the users in their context. Outsourcing is very crucial aspect in business has it help in avowing the tiresome vertical incorporation of an activity in an organization. Based on Greaver (1998), perspective, the above definition is very instrumental and strategic in because is touches on the overall working of the firm.
Business Process Outsourcing (BPO)
Greaver, (1998) asserts that BPO is instrumental way of creating a competitive privilege for all firms of various volumes and size. It is a phenomenal aspect in business that is attributed to the growth and advancement of in communication as result of information technology. The development of this field has been facilitated by the growth internationalization of services and projects. BPO is an industry that is heterogeneous and differentiated by the vertical specialization like processing and imaging found in banking sector and medical transcription relevant in health and horizontal processes like HR, finance and operations within the firm (Lacity& Willcocks, 2001).
Information Technology Outsourcing (ITO)
The transfer of IT and its services as well as products has been made possible by information technology outsourcing also known as information system outsourcing something that for a long time been done by firm’s internal IT department. According to Loh and Venkatraman (1992) ITO is to the crucial achievement by the outside vendors in human resource and physical resources as result of the specific or entire entities of IT infrastructure within the firm that embraces. They also observed that ITO practices range from total insourcing to total outsourcing while the outsourcing is treated as a constant variable that is dependent on the level of outsourcing activity. Furthermore, Lacity and Willcocks (2001),pointed that ITO is very lucrative in the market growing at the rate of 14% worldwide.
Human Resource Outsourcing (HRO)
This is the process of subcontracting people to offer services to a third-party supplier, that were performed earlier within the firm or services that can also be done within as per Doyle and Tapper (2001).Human resource outsourcing is done despite the firm doing the same activities to create competitiveness in the market. Due to its value proposition within the recent past, HRO has continuously been embraced as noted by Penrose (1959).
A company that outsources HR activities realizes improvement in its service delivery to both the customers and its employees. However it requires scrutiny to distinguish the activities that can be outsourced as some may not be instrumental in a company seeking to have competitive advantage over other companies. Ashley (2008), noted that business surrounding changes has an impact on how companies manage their employees, hence creating the balance of the advantages and disadvantages for outsourcing HR processes. According to Ashley, there are four forces that influence HRO; self-advancement efforts, the complexity of legal framework of HR, pressure in labor market as well as mergers and acquisitions that have created turmoil in HR.
Advantages of business outsourcing
This mostly focuses on the main functions which include admission to practice cost savings, increasing flexibility and also improving performance. Lot of researchers have come into an agreement that the handling of some activities which are non-core to a trusted third party, leads to a business to focus into activities which are more dominant to its value proposal thus this makes the company to increase its competition position into a very higher rate (Henry 2008).
According to Anikin and Rudaya (2009), outsourcing is held towards one of the main objective that is saving costs. There are some special necessities which arise when particular resource is not wanted or in need full time. For an instance, small businesses, there is need for them to keep technical expertise in any way and also they need maintenance occasionally. It will be beneficial for a business to outsource some tasks which have high cost for example like employing and preparing engineer who more capable in computer maintenance.
Third advantage of outsourcing is that businesses have the option to contact highly competent personnel who are very rare to have in client organizations and completely exploit the supplier’s innovations and also specialist’s capabilities (Ashley, 2008).
Also, company which has practiced outsourcing is achievement in performance which is gained after the company offers because of the frugalities scale. In big scale, company can assist in many occupations and also chances which always help to save accessible personnel who might need to do their jobs in a less inspiring consumer working condition or environment (Doyle & Tapper 2001). Having service providers, it is known that the level of operational experience is always very high and this is of the greater attentiveness of the staff on the work given and which is compared to the internal operations.Onother key reason for outsourcing is flexibility. This is because outsourcer’s contracts and the work of their employees mostly be contingent on the degree of the flexibility which this is known to reflect changing environment of the business (Doyle & Tapper 2001).
Disadvantages of business outsourcing
Ashley (2008) suggested that one disadvantage of outsourcing is the damage of the managerial control over the outsourced operations .This brought some issues which includes threat to the security and also the lowering the confidence. Quality problem, reallocating of the existing teams and also the hidden costs are also the disadvantages outsourcing. Disadvantage which is connected to the loss of managerial control is that the outsourced operations are used to stem from the fact that managing external resources need one to have some special skills which includes the power of negotiation, process management and also the contract management. This makes a lot of individuals to shy off from business outsourcing if they lack these abilities or if they fear to risk.
According to Doyle & Tapper (2001), many outsourcing agreements, their terms of security and privacy are brought out and the reasons are always problematic to understand. In some cases like commercial services, there are some necessities which retain information known to bankers away from business people and other personalities who need services.
Anikin and Rudaya (2009) stated that one main reason to outsource is to receive improved service from the outsourcer than what you get from interior staff. When company needs to choose outsourcer, it needs to look for such values which ensure there is no bad inspiration of the value of goods and services produced by this business company. When this is not achieved, business may lose its position on the entire market (Anikin & Rudaya, 2009).
Ashley (2008), suggested that the company is needed to sign a agreement with the outsourcing business company and this contact includes the cover details which of the service that this outsourcing company will provide. If there is something not covered in the contract, it will need the business company to pay extra or additional charges. This comes as a disadvantage because the reason of outsourcing is to reduce the cost but if in some cases does not reduce it, it has no meaning.
According to Henry (2008), outsourcing is commonly known by the firing in employee’s minds. This comes as a problem to management because it is very hard to make decision on how to move away the existing employees. In many companies, after outsourcing, the original group moves from the outsourcing party to the outsourced one which this brings a lot of changes.Henry suggested that by sponsoring such change and failing on your hands can lead to the termination of the one company’s stuff management.
Methodology
As the objective of this of this study is to analyze the present state of the Kazakhstan banks, there are some methods used by researchers so that they could obtain good and accurate results. For any performing research being practiced, it is advisable to select the best way and method that can provide wide range of information and data that is well related to the subject that is being discussed. The method which was employed here was face to face interview with the top bosses of the both companies. This method was seen suitable because there was a lot of information which was needed from the managerial staff and other methods could limit the information.
Also this method was seen adorable because the researcher can be able to adapt the questions necessary and then make sure that the one who is being interviewed responds well and understands the questions easily. This can be done by the researcher rephrasing the questions or repeating it again so that the interviewee can understand (Lacity & Willcocks, 2001).
In this case, managerial staffs such as the chairman of the HSBC Bank Kazakhstan, the processing division of the center of Halyk Bank Kazakhstan and the Head of Payment cards department of BTA bank were both interviewed using face to face method in the year of 2009 from February to March.
Respondents (managers) were well directed by a list of the issues which were being interviewed in this study. The list was being used as outline so there was no bias difficult that lead the respondents to put attention in only items on the list. This study was conducted using Russian language and the time by which this interview took place was only varying between 30 minutes to one hour.
Analyses and Results
HBC Bank Kazakhstan is known to be one of the branches of the HSBC group and which operates effectively in a very wide-ranging network globally. This Kazakhstan bank is seen as the smaller one compared by the other local banks. By outsourcing it, it makes its operations flow out from limited resources.BTA Bank is a union of two local banks which are AlemBank and TuranBank.By merging these two banks forced newly formed one which outsourced processing center of Alemcard LLP.This is because the management team found that developing and maintaining process systems by its own is very expensive. So to reduce costs they had to outsource one bank. As Halyk bank mostly operates with institutions which are sponsored by government, the numbers of clients is very high.
Therefore, Halyk is supposed to seek third party outsourcing in order to maintain and improve its services to the clients. According to research conducted, BTA bank and Halyk bank have some common things and similarities. This is because they both have outsourcing function of the payment card processing and this function is one of the most expensive activity and process in the banking operations. This process to succeed, it requires many years like eight to twelve years and also stable relationship is more important to succeed.
According to Anikin and Rudaya (2009), their research reveals that both banks which is BTA and Halyk banks are practicing one process which is referred to internal outsorcing.Main reason to practice this process is because the levels of the performances in the bank directly influences improvement of performance and which is the advantage to the whole bank.
Results of this research suggest that HSBC Bank Kazakhstan faces hidden costs often. This is because there are operations which are not able to be functioned by their own due to legislation, bank can hire in-house employee who can help them in coordinating and also controls the needed action of the outsourced company. From this point, BTA bank hidden costs appear because of the development characteristic of the processing. Because of the partnership of the BTA Bank and Halyk Bank, there is no expenses increase due to the flexibility of the outsourced functions. Though it gets some disadvantages, it should find a way to solve these problems.
Conclusion
Outsourcing is one of the worlds most used process which is used by business practices. Though, this practice has both advantages and disadvantages. This depends on how the company operates and also its aims, because outsourcing can bring both profits and dangers to the customer company. From the analysis, outsourcing practices act differently from different companies. This states that the outsourcing practices cannot guarantee benefits of cost reduction as it is observed I the HSBC Kazakhstan Bank. It may work different in other outsources companies and bring disadvantages and loses.
For outsourcing with short term characteristics, like the case of HSBC Bank Kazakhstan, there are some advantages which are easily achieved like the flexibility. Any business cooperation should be very careful when choosing this practice and it should ensure that there are no disadvantages but only advantages to achieve. This is by conducting good research on which company to ask for outsourcing. The size and flexibility of company should be the first thing for these companies to look after.
References
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