The Outsourcing Advantage

Abstract

Outsourcing has become a well-integrated function in the world of business today. Outsourcing forgoes attempts to perform certain value chain activities internally and instead, farms them out to outside specialists and strategic allies (Gamble & Thompson, pg. 127). An affordable and often more efficient way to meet a goal or perform a task is to have it outsourced. There are many reasons to outsource a task or function. Each reason varies, depending on the nature of the task, the firm’s available resources and the desired outcome. Outsourcing also stimulates the economy, providing a means to support local businesses while simultaneously keeping the organization’s resources aligned internally. There are risks associated with outsourcing as well. One must maintain a localized and unified vision, with the firm’s best interest in mind, before deciding to outsource a job and also for the duration of the contract.

In the world of business today, everyone is looking for the competitive advantage. Organization’s need to streamline their business practices in order to maximize profit margins and reach sustainability. One way to do this is to outsource. Outsourcing is simply the function of taking internal resources, and giving them to outside firms who then make those work operations their sole responsibility (driveyoursuccess.com). More and more companies seem to be outsourcing their services. A recent study by BlueWolf revealed that 35% of companies will outsource more in the next 18 months. This begs the question, why are companies choosing to outsource their jobs? Some companies spend nearly half of their outsourcing budgets on application services including development, hosting and maintenance (King, 2012). Some of the most common services to outsource are payroll, sales & marketing, IT, manufacturing and finance (driveyoursuccess.com).
Two such firms that choose to outsource are Travelocity.com & Priceline.com. Outsourcing allows a company to concentrate on its core business, leverage its key resources and core competencies, and do even better what it already does best (Gamble & Thompson, pg. 127). In Travelocity’s case, the majority of their job functions are outsourced. Travelocity, the online booking site owned by Sabre, has given in to the intense competition in the online booking sector, and gone with the least risky option short of actually selling itself off: it has done a deal with once-competitor Expedia, to use its technology platform to power its North American sites (Ali & Schaal, 2013). The move shifted technical operations behind the scenes at Travelocity over to its former arch rival and gives the smaller OTA the chance to “focus its efforts on promoting its brand and marketing the broad offering of travel services and supply made available through this agreement” (May, 2015). Priceline.com, a similar online booking site, has also chosen to outsource some of its services. One of such services is Priceline’s Call Center Support, outsourced to a company called CALLTECH. All inbound phone calls and other Teleservices are processed by CALLTECH. Choosing to outsource these tasks has been done in efforts to gain a competitive advantage against their competition.
Both of these companies have chosen to outsource with the same goal in mind. A company is better able to build and develop its own competitively valuable competencies and capabilities when it concentrates its full resources and energies on performing those activities (Gamble & Thompson, pg. 127). Both of these companies have formed these strategic alliances in hopes to complement their accumulation of resources and capabilities and strengthen their competitiveness in domestic and international markets. When companies want to be perceived as being bigger than they are, nothing is more impactful than the benefits afforded from having round the clock customer service support at a fraction of the cost of a full time department (Gamble & Thompson, pg. 127).
In contrast, outsourcing could also dangerous to the firm seeking the arrangement to toll. The biggest danger of outsourcing is that a company will farm out the wrong types of activities and thereby hollow out its own capabilities, and in such cases, a company loses touch with the very activities and expertise that over the long run determine its success (Gamble & Thompson, pg. 128). In outsourcing, a company is relying on someone else to run certain business functions. If not properly managed, companies may negatively affect their operations and customers. In Priceline’s case, the calls that are inbound are most-likely going to be customer-related. If the goals of the toller are not aligned with the goals of the outsourcing company, there is a risk to damage the reputation that the firm has with its customers. Travelocity has also chosen to let another company serve a communication function for their organization. Allowing Expedia to control this function and use its technology platform to power its North American sites has a similar risk associated. Travelocity now has relinquished the majority of control over to another firm. It is important for both Travelocity and Priceline to track the performance of their service providers. The outsourcing party must monitor their tollers closely to ensure that their needs are being met consistently, in order to make sure that their intentions to improve by outsourcing are not countered by the contractors. The firm needs to avoid becoming dependent on the contractor. They must ultimately develop their own resources and capabilities in areas where internal strategic control is most important to their success.
Many companies are choosing to outsource one or more of their services. With these new strategic partnerships in place, the outsourcing firms have much to gain, but also much to lose. As with any important sourcing strategy, companies who do not follow a carefully developed and highly inclusive outsourcing methodology increase their sourcing risks dramatically. Without a detailed, disciplined methodology and procedures, companies will often suffer from inconsistently applied policies and strategies, higher risks and more serious risks, and processes that will be ad hoc rather than well defined and/or optimized. The results will tend to reflect lower efficiency, inconsistent supply results, and higher operating costs (O’Keeffe & Vanlandingham, 2004).

References 1. Gamble, J., & Thompson, A. (2009). Chapter 6: Supplementing the Chosen Competitive Strategy—Other Important Strategy Choices. In Essentials of Strategic Management: The Quest for Competitive Advantage (3rd ed.). Boston: McGraw-Hill Irwin. 2. King, R. (2012, August 15). Cloud Services Drive Fast-Growing Outsourcing Market. Retrieved August 1, 2015, from http://blogs.wsj.com/cio/2012/08/15/cloud-services-drive-fast-growing-outsourcing-market/ 3. The 5 Best Outsourcing Functions that Save Businesses Money. Retrieved August 2, 2015, from http://www.driveyoursuccess.com/2010/07/the-5-best-outsourcing-functions-that-save-businesses-money.html 4. Ali, R., & Schaal, D. (2013, August 22). Travelocity Gives In, Sites To Be Powered by Expedia. Retrieved August 2, 2015, from http://skift.com/2013/08/22/travelocity-gives-in-sites-to-be-powered-by-expedia/ 5. May, K. (2015, January 23). Expedia buys Travelocity for $280 million. Retrieved August 2, 2015. 6. O’Keeffe, P., & Vanlandingham, S. (2004, June 6). MANAGING THE RISKS OF OUTSOURCING: A SURVEY OF CURRENT PRACTICES AND THEIR EFFECTIVENESS. Retrieved August 2, 2015, from http://www.protiviti.com/en-US/Documents/Surveys/ManagingOutsourcingRisks.pdf