Change Management Alexandru Clisu

Bianca Cremene
Irina Munteanu
Outsourcing – An overview

The project’s main focus is to review and analyze why outsourcing is a good strategic
use of the outside resources in order for a company to emerge. This strategy is based on different
contracts made outside the company to fill different functions with specialized service
providers. A company should choose outsourcing because this strategy might help controling
the operation costs, improving the business focus, gaining skills from specilized firms and
sharing risks with an outside company which may prove more skilled in the kind of situations.
This paper is trying to provide a better understanding of outsourcing by using four key case
studies that were analyzed and reviewd as follows. In order to sum up, the four main articles
were brought together and discussed from an objective perspective whilst coming up with the
advantages and disadvantages of this proposed strategy.

The first article taken into consideration is analyzing the multiple drawbacks of
outsourcing, using the relation between firms as the starting point. As stated by Mani and Barua
(2015) outsourcing outsourcing has emerged as an imperative objectives for firms, due to the
fact that it is cost effective and reduces the costs of having a particular employee just for the
task. The ITO’s ( IT outsourcing) has seen noticebly growth due to the fact that it brings value
creation, faster time to market innovation and and multiple client’s contexts. Nevertheless, since
it is such a trending phenomenon, Mani and Barua (2015) asked a very crucial question : Do
outsourcing firms lean to create value ? The answer is based on a survey, discussed in the article,
which explains why the relationship between one firm that is contracting and the other that is
offering the outsourcing services is crucial, and as stated :

„The stronger the relational learning, the greater the value”

The second article, intitled „Business Process Management Journal- E-business strategy
in Western Europe : offshore BPO model perspective” is investigating the effectiveness in early
stages of offshore business process outsourcing (BPO), especially in the case where the
contracters are based in different countries, and they encounter the language barrier. As Kim
(2008) states, that hybrid structure is very effective for BPO because it consist mainly of inter-
organizational coordinations and social control. Nevertheless, there are some barriers, which a
business will encounter if choose to offshore, the best being presented in the case of Auchan
(loss of relationships, information loss, vendor’s opportunistic behaviour, lack of coordination,
cultural and language barriers and the inability to accomodate specific needs)
Change Management Alexandru Clisu
Bianca Cremene
Irina Munteanu
Companies that wish to offshore their businesses should choose the service providers that
facilitate their needs in the most appropriate conditions, and the study helps the practicationeers
to have a better understanding of why this offshore outsourcing might be crucial in order to
grow from a business perspective.

The third article is looking at Strategic Outsourcing from the perspecive of a call centre
management. Ibrahim and Hanafi (2013) are looking at different ways to mitigate the
opportunistic behaviour -mentioned as a threat in the previous paragraph -through proper
performance management and observation. In order to better understand the risks that occur,
Ibrahim and Hanafi (2013) proposed the study from two different companies using different
pricing schemes. The data analyzed extened to 107 weeks, and indicated that performance
management is crucial in order to manage a BPO. The authors found that a proxy to detect
diffficult measures service levels confirms the opportunistic behaviour at a corporate level.
From the perspective of a call center, the average handling time (AHT) would diminish if proper
strategies are used and precticed. This paper is trying to show that telecom companies that are
interested in outsourcing might consider the impact of different pricing chemes and the service
level dimension and should shift their attention towards overall performance in terms of
identifying better developed services that are not practicing opportunistic behaviour.

The last article is based upon the evolution of outsourcing in India, and particulary
analyzing the industry as a whole. Agrawal, Goswami and Chatterjee (2010) stated that the
outsourcing industry is not only a relatively a new practice but also a very profitable one by
highlighting its advantages and disadvantages. Outsourcing can provide a better flexibility and
rapidity for the company because its suppliers are usually experts in the field, but can also have
hidden costs, destroy business relationships and jeopardize multiple jobs.

Conclusions

In this project, we analyzed the concept of outsourcing from the point of view of its
evolution, but also of the incentives, and we’ve managed to present the pluses and minuses
associated with this concept. Outsourcing is an important decision that saves cost and improve
the competitiveness of firms. The main reasons why companies choose to outsource world are:
efficiency, service quality and duration of the process.
Change Management Alexandru Clisu
Bianca Cremene
Irina Munteanu
It is obvious that the outsourcing market for all types of services has increased in recent
years and continues to grow. Already companies that are using the service of outsourcing, have
no longer seen this business model as a cost reduction but as a way of streamlining processes
and time dedicated to certain operations. We find strong evidence that firms learn to create
value with increased relational and procedural learning and that the magnitude of these learning
effects is greater in complex tasks governed by variable price contracts than in simple tasks
managed through fixed price contracts. We also find that markets take time to price the effects
of the two types of learning.

If we are talking about the IT industry, given the importance of relational learning, it is
also critical for the IT group to implement processes and applications that enable the
outsourcing firm to better understand the vendor’s actions and responses, and to engage in high
levels of coordination and collaboration. In addition to streamlining processes and reducing
support time, outsourcing firms are also sought to maintain wage confidentiality, or to ensure
the continued operation of the IT network and the development of software applications.

On the other hand, one of the greatest dangers of outsourcing can be the fact that, with
the contracting of a company that provides such services, a firm can also outsource the know-
how in that field. If a company would want to internalize those processes, they will have to
recruit once more and maybe even train those people.

If we are talking about the telecom companies, researchers interested in the field of call
center outsourcing should shift their attention toward overall performance management of the
business outsourcing process, in terms of identifying better developed service level agreement
variables and effective client-vendor relationships.

Offshoring to developing countries is increasing continuously with an annual growth

rate of 27 per cent during 2003–04 to 2006–07, and India remains on top among the offshore
service provider countries. Lower transportation cost, lower cost of real estate, lower cost of
skilled professionals, efficient communication system, higher quality standards, and so on,
facilitated the faster growth of outsourcing in India. Small and medium firms are also getting
the benefits in India. A host of studies explained the bright future of offshore outsourcing
specifically in the Indian context. The future of outsourcing in India depends largely on the
innovativeness and the efficient management of the sector, at least during the phase of ongoing
global economic recession.
Change Management Alexandru Clisu
Bianca Cremene
Irina Munteanu
After this analysis of the advantages and downsides of outsourcing, our conclusion is
that companies should relieve themselves of the services that do not represent their core
business, from which they profit, and outsource some of the activities in order to increase
efficiency. We believe that nowadays, outsourcing is no longer a trend, but a necessity for the
performance of a business.

Reference List

Agrawal, S., Goswami, K. and Chatterjee, B. (2010). The Evolution of Offshore

Outsourcing in India. Global Business Review, 11(2), pp.239-256.

Elwan Ibrahim, S. and Hanafi, A. (2013). Call center offshoring performance

management. Strategic Outsourcing: An International Journal, 6(3), pp.292-312.

Kim, G. (2008). E‐business strategy in Western Europe: offshore BPO model

perspective. Business Process Management Journal, 14(6), pp.813-828.

Mani, D. and Barua, A. (2015). The Impact of Firm Learning on Value Creation in
Strategic Outsourcing Relationships. Journal of Management Information Systems, 32(1), pp.9-
38.