Outsourcing As A Business Strategy Has Been Practiced For Years.docx

What makes outsourcing so viable is the fact that there is a dramatic change in the way companies are competing. There is variation of drivers a company outsourcing depending on their own strategy or goals. In traditional approach of outsourcing, the most important drivers for outsourcing choices are cost efficiency and production reorganization. By outsourcing, companies can focus their efforts on core business, medium-/long-term targets and diversification opportunities (Kippenberger, 1997a, b; Underdown and Talluri, 2002; Linder et al., 2002). On the other hand, advancing technologies offer more opportunities to be agile, to enter new markets, and to expand offerings, which accelerate growth, hence, cost optimization is still important for outsourcing, it is no longer at the top of the list. The value in robotic process automation and other technologies is clear, and companies are increasingly encouraging their service providers to adopt these and other solutions (reference delloite). Outsourcing is an increasingly popular business model in Australia. According to a recent market research report by IbisWorld, it’s been growing by about 1.2% per year from 2013 to 2018, with a projected revenue of 32 billion dollars this year. The last decade showed an evolution in outsourcing processes from traditional to strategic. Strategic outsourcing is “when companies outsource everything except those special activities in which they could achieve a unique competitive edge” (Quinn and et al). According to Francheschini and Galetto (2003), outsourcing can be an excellent way to improve processes, but at the same time, if improperly used, it might lead companies to lose their skills and knowledge, which are difficult to recover. Hence, they designed an innovative general model able to analyse and drive a dynamical vision of outsourcing process throughout all decisional steps. The model is organized in four main steps: internal benchmarking analysis, external benchmarking analysis, contract negotiation, and outsourcing management. Internal Benchmark Management should consider and compare the efficiency of different activities, highlighting possible wasting of money and lack of skills. Analysing the BPO opportunity means identifying core competencies and determining the most effective way to support high performance in those activities. An increasingly effective way to support core competencies is by outsourcing noncore functions to third-party providers. For instance, in 1988 a chemical plant outsourced to Corrpro the management program related to corrosion prevention and life extension of pipelines which are noncore activities of the plant and lead them to 3million per year savings over the lifetime of the contract. Internal benchmarking can be helpful in finding the best practice in each management/production activity and facing the problem of evaluating the corresponding level of efficiency (Kippenberger, 1997a, b; Hyland and Beckett, 2002) For instance, when AT&T’s opted to outsource human resources, finance and HR departments developed an atypical process for determining which HR activities would be best served by outsourcing by way of asking respective managers to provide evidence that their activity should be retained in-house. In doing this, managers become cognizant of the benefits of outsourcing, less adversarial and threatened by the strategy, and potential advocates of strategic change to employees. External Benchmarking Analysis The external benchmarking analysis is the considered tool to monitor service levels offered and to define competitors’ relative positioning in the market (Karlof and Ostblom, 1993; Hervey and Lush, 1997; Underdown and Talluri, 2002; Yasin, 2002). The aim of the external benchmarking analysis is supplier selection. Identifying, selecting, and contracting with the right BPO outsourcing company is essential to the success of any initiative. These selection process should be thorough and rigorous and take on a life cycle of its own that includes appointing a selection team; establishing

qualifications; developing list of outsourcing companies; distributing request for information; evaluating proposals; culling the list of prospective companies; and making final decision. Contract negotiation According to Duening and Click (2005), Similar attention and consideration should go into developing the contract, especially poorly crafted contracts area key contributor to the failure of the outsourcing relationship. Effective contract design is the first step in good governance. The contract represents a mutual attempt to control uncertainty in desired behaviours and outputs. It defines the important parameters of the BPO relationship, such as SLAs, intellectual property rights, performance metrics, and indicators, rewards, privacy, and regulatory issues, and exit conditions. When the contract is not appropriately created or managed, the BPO tasks are poorly executed. The result is higher-than-anticipated costs and lower-than-expected results. Managing the outsourcing process According to Duening and Click (2005), the impact of changes is complicated by the arrival of new relationship between BPO actors. The transition itself should be carefully managed and be mastered only through an ongoing focus on business benefits expected by both parties. It requires further negotiation, communication, and business skills, and must be characterized by trust and the alignments of values. By understanding and pursuing the fundamental traits of a successful BPO relationship, both actors can make critical decisions necessary to achieving project success, and, potentially, forge partnerships that outlast the current initiative.