What Are the Pros and Cons of Outsourcing Services?

Outsourcing, also known as resource outsourcing and resource outsourcing, refers to the integration of the company's best external professional resources to reduce costs, improve efficiency, give full play to its core competitiveness and enhance the company's environmental protection. A management model for rapid response. In order to gain more competitive advantages than simply using internal resources, the company assigns its non-core business to cooperative enterprises.

Business outsourcing

Business outsourcing is a new type developed in recent years

The problems in business outsourcing mainly come from the following aspects:

May increase corporate responsibility shift

Due to the lack of business monitoring in outsourcing operations, the possibility of outsourcing of corporate responsibilities is increased, resulting in more difficult quality monitoring and management.

May dampen employee enthusiasm for work

May dampen employee enthusiasm for work and cause employees to lose their professionalism

In business outsourcing, the interests of some employees will inevitably be involved. If they know that it is only a matter of time before their work is outsourced, employees' work enthusiasm and professional ethics will be reduced, and they will lose confidence in the company and the driving force of the work. As a result, work performance has dropped significantly.

Intellectual property issues

Especially business outsourcing such as research and development. The ownership of the patents and copyrights of the technology developed by the outsourcer is usually reached by an agreement between the company and the outsourcer rather than legal requirements, which leaves a lot of room for errors and pitfalls.

Outsourcing company loyalty

Driven by benefits, outsourcing companies may move from one company to another, resulting in out of control. But at the same time, excessive reliance on outsourcing companies will increase transaction costs

Selection of Outsourcer

Enterprises have many options for business outsourcing. Choosing the wrong outsourcer can lead to the failure of key technologies and thus lose the leading position in competition.

Currently, business outsourcing has three characteristics:

First, outsourcing is biased towards back-office business

In the new economic era, the market is changing rapidly, and the basic criterion for enterprise survival is to be able to obtain terminal information in a timely manner and change with the market. In order to grasp the terminal market and take the pulse of the quasi-market, many companies are doing their own work on the front-end business, strengthening services, and outsourcing back-office business, which is far from the market.

The second is that outsourcing is biased towards mechanical business

In the information society, the product life cycle is shortened, the variety is increased, and the batch size is reduced. Customers also have higher and higher requirements for the product delivery cycle, price and quality. In this context, meeting individual needs has become a top priority for companies. To this end, enterprises should outsource mechanical and repetitive business through digitalization and software.

Third, the outsourcing business is biased towards off-site business

The important business of an enterprise requires on-site operations, which must be completed by the enterprise itself. For those off-site or network-based businesses, outsourcing can be implemented. Enterprises can use information technology to achieve mutual data exchange with partners through the Internet,

According to different standards, business outsourcing can be divided into different types, such as overall outsourcing and partial outsourcing.

Research and development outsourcing

R & D outsourcing is the use of external resources to make up for the lack of their own development capabilities.

Although business outsourcing has many advantages, such as reducing production costs, diversifying business risks, and obtaining scarce external resources, etc., there are many uncertain factors in the process of formulating and implementing business outsourcing, which brings risks to business operations. Therefore, it is important to fully consider and analyze the factors that affect business outsourcing in order to take advantage of outsourcing and avoid outsourcing risks. Negligence on either side may put the company in the risk of outsourcing, which will not only greatly reduce the benefits of outsourcing, but in the worst cases, it may even lead to the loss of control of the company's business and core capabilities. In general, the main factors affecting business outsourcing are the following:

Overall strategy for business outsourcing

The business outsourcing strategy of an enterprise must match its overall strategy. The overall strategy is the basis for the establishment of business outsourcing, and business outsourcing is a specific strategic move under the overall strategic arrangement. The company's overall strategy not only determines the company's self-control / outsourcing decision, but also influences the outsourcing target, outsourcing model, and supplier selection. Professor Porter of Harvard Business School believes that there are three basic strategies that companies can use in market competition, namely cost leadership and differentiation.

And focus strategy. Companies pursuing a cost-leading strategy always try their best to make the industry the lowest cost. To this end, economies of scale are required to reduce costs; while differentiated strategies provide users with unique products and services, thereby obtaining premium rewards. Generally speaking, when outsourcing business, cost-leading vendors may pay more attention to the cost-saving advantages of suppliers, while differentiated strategic vendors pay more attention to the degree of matching and integration of supplier resources and enterprise resources. Obviously, the overall strategy of the enterprise is different, and the outsourcing strategy is correspondingly different. An outsourcing strategy that does not match the overall strategy of the enterprise will not only greatly reduce the benefits of outsourcing, but may put the enterprise in the risk of outsourcing, thereby damaging its core competitiveness.

Business Outsourcing Business Nature

To successfully implement business outsourcing, companies must choose the right outsourced objects, that is, determine which businesses are suitable for outsourcing and which businesses must be self-made. Due to the different resources required for different business activities, the degree of importance to the company's competitive advantage is also different, so the business that the company engages in can be divided into core business and non-core business accordingly. The core business (such as R & D of software companies, manufacturing of manufacturing companies, etc.) is the business that has the most resources invested by the company and plays a key role in the survival of the company; it is often also a company that is good at, can create high returns, has development potential and market prospect Business Activity. Non-core business revolves around core business, and its strategic importance to the company is relatively low. For example, the financial activities, human resources business, and logistics of manufacturing companies are non-core businesses.

Theoretically, the more complex the nature of the business, the more important it is for the company's competitive strategy, and the greater the possibility of information asymmetry. Therefore, the more companies tend to internalize it rather than outsource it. This view is supported by empirical research. Masten (1991) found that in the aircraft manufacturing industry, the more complex parts, the greater the possibility of internal production. From the perspective of core competencies, core business is the carrier of the core competencies of the enterprise and must be kept inside the enterprise. Improper outsourcing of core business may lead to the loss of core competencies. The impact of non-core businesses on the company's competitive advantage is relatively weak. Therefore, such businesses can be outsourced as needed, or even directly purchased through the market to reduce risks and improve the efficiency of enterprise resource utilization.

Business Outsourcing Asset Management

Not only does the nature of the business affect outsourcing decisions, the nature of the assets that the business needs to invest in also restricts the choice of outsourcing strategies. Transaction cost theory holds that the higher the degree of asset specificity, the higher the market transaction costs, and therefore the greater the investment risk. The so-called special assets refer to assets that are invested to support a particular transaction. Once they are formed, it is difficult to use them for other purposes. Therefore, the two parties to the transaction have a strong dependence. If one party defaults, the other party will generate huge transaction risks. Assets with a low degree of specificity are widely used, difficult to use and easy to obtain. For such assets, market trading is an ideal choice. For products or businesses with a medium degree of asset specificity, outsourcing can be implemented and external suppliers can be used to achieve economies of scale.

Business Outsourcing Partner

In business outsourcing, a partnership is actually formed between manufacturers and external suppliers, and the performance of outsourced suppliers greatly affects the manufacturer's service level to the market. Therefore, the selection of outsourcing suppliers occupies a relatively important position in the formulation of business outsourcing strategies. How to choose the most suitable supplier is a problem that corporate managers need to seriously consider. The selection of outsourcing suppliers is quite difficult. Once the decision is wrong, the company will face greater management problems. Generally speaking, when choosing an outsourcing supplier, it must first have a clear purpose-to obtain resources or reduce costs? The purpose is different, and the basis for selecting an outsourcing supplier is also different. When a company decides to adopt a cost-saving solution, it is not surprising to expect suppliers to be cheap. Secondly, there must be a scientific evaluation system to evaluate potential outsourcing suppliers. For example, potential outsourcing suppliers can be evaluated in terms of investment quality, transaction price, delivery time, technical capabilities, service levels, and satisfaction. . Obviously, the ability of outsourcing suppliers is the key for enterprises to evaluate and select suppliers. The blind pursuit of low prices may damage the quality of outsourcing business and ultimately affect the market performance of enterprises.

Business Outsourcing Process Management

As business outsourcing is an intermediate form of market transactions and vertical integration, a principal-agent relationship is actually formed between the vendor and the outsourcing supplier. The outsourcing supplier has more product and service quality than the manufacturer. , Cost, and other information, leading to information asymmetry. In addition, differences in the concepts and cultures of the two partners and ineffective communication mechanisms may lead to the failure of outsourcing. Therefore, it is very necessary to strengthen the management of the outsourcing process. To this end, it is possible to solve the problems and contradictions in the business outsourcing process and prevent accidents by establishing a corresponding management coordination organization and establishing a smooth communication channel. In addition, it is also possible to strengthen the supervision of the outsourcing process and reduce the risk caused by the asymmetry of information in the outsourcing process through the management control methods such as refining outsourcing contracts and establishing quality assurance systems.