Outsourcing

Outsourcing is the contracting out of a company’s in-house function to a preferred vendor with a high quality level in the particular task area. Outsourcing is one of the fastest growing trends in business. Large- scale organisations such as Telstra (especially for their Internet and Pay-TV divisions) have latched onto outsourcing due to the almost immediate opportunity of savings and quality improvement. Outsourcing can impact many elements of an organisation in a positive or negative manner. Areas such as structure, corporate culture, cost centres and labour have the most tendency to react to outsourcing developments.

Employees of organizations don’t benefit from outsourcing as they are at a risk with becoming redundant. This occurs as another group outside the organization who have similar skills and competencies that can perform the same tasks replace existing workers. This treatment of employees can trigger a collapse in confidence and morale from all other employees throughout an organization as they view fellow employees leaving due to job replacements. Therefore in the future lasting employees will feel uncomfortable in an organization that is constantly outsourcing with fears of loosing their job. In order to prevent this morale downgrade management may choose to cross - train redundant employees so they can fit in another suitable position, where it may for expansion or increase labour productivity.

Another aspect that may be impacted by outsourcing is the hierarchical structure. If a certain department is run from outside such as Human Resources, i.e. recruitment is controlled by an outside body, this makes the ‘HRM’ division to be removed from the organization and hence its formal structure. Advantages of clearing a structure can give senior management the prospect of re-using and expanding into locations that have been previously outsourced. The departmentalisation of the structure might have to be altered to correspond with the changes caused from outsourcing.

The reason why an organisation can reduce costs when going ahead with outsourcing is because it can call upon the outside body to perform a task on a ‘need basis’. This means an organization can call upon a contracted when the need be. Re-visiting the HRM division being outsourced, this division is working away all the time with unnecessary wages being paid. An organization does not need people in charge of obtaining recruitments all the time so by outsourcing recruitment, money can be saved. Another consideration is the redundancy of workers, if employees are dismissed, here wages can be saved. If the organization locates a contractor that is cheaper than redundant workers then the net money situation is favourable for the organization. Often contractors and specialised in their particular task, so the factor of improved quality and reliability are driving forces when considering outsourcing.

Outsourcing does not eliminate decision-making and the need for managers to control. Rather, managers must continuously monitor and evaluate the outsourced functions to ensure that partners are as a whole beneficial to the organisation.