A Brief Introduction to Outsourcing Management Essay

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Outsourcing is a business trend that has greatly increased in recent years with more and more companies outsourcing part or whole of their functions/activities. Outsourcing can be defined as the transfer of a business function or activity previously produced in-house to an external supplier which then takes prime responsibility for fulfilling the task (Finn, 2007). Although companies may perceive outsourcing as an alternative to reduce costs as a result of access to economies of scale and improve performance as a result of unique expertise that a large outsourcing vendor can deliver (Roodhooft and Warlop 1999 cited by Jiang and Qureshi 2006), outsourcing has many hidden cost and risks that can lead to create various
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Access to economies of scale and lower labour costs as a result of outsourcing have helped to reduce operating cost of real life companies like BP (British Petroleum) which contracted Exhul to carry out administrative and business processes of its HR function. The deal resulted in a reduction of $15 million a year in operating costs and the avoidance to fund $30 million in capital cost for technology (Belcourt, 2006). A further example that illustrates cost-saving through outsourcing is UK company British Telecom (BT) which incurred over £50m a year to run an in-house HR function and by transferring this function in a five year deal to outsourcing provider Accenture, BT saved £30m from that contract.

Real cost reduction experienced by British Petroleum and British Telecom demonstrates that there can be significant cost saving as a result of outsourcing. Some companies have had to exploit the opportunity to reduce costs in order to survive as a result of fierce competitive prices, pressure from shareholders to increase company’s value and customer pressure to reduce costs. A company that had to outsource in order to survive and