Role of outsourcing business functions in maintenance of competitive advantages

Document Type:Case Study

Subject Area:Business

Document 1

Outsourcing is a way in which companies can get the services of people that are not part of the company for specific services. The spending of outsourced resources in the company make for decisions made on this matter of outsourcing very prudent. Project Objective The main objective is to analyze the role of that outsourcing plays in a business organization in the effecting of a competitive advantage, taking West Pac as a case study. Project Scope Outsourcing is something that affects not only some certain business organizations, but it is something that affects business organizations across all the industries. This project, however, will only deal with the effect and the role of outsourcing in a banking institution that is the West Pac bank in Australia.

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The cost leadership strategy faces a challenge of operating at a sustainable profit level other than just draining profits from other organizations in the same industry as well as the organization itself running at losses. The strategy of differentiation is key on the production of goods and services that the competitors have not yet offered or they are unable to do so. The provision of a different product puts the company at a strategic position where they are able to give services and goods that their competitors cannot provide. They are able to maintain an upper hand advantage over their peers in the market. In the focus strategy an organization tries to focus much on a small space of their industry and try to get an advantage over their competitors by either the cost of the product or by the differentiation of their products.

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The strategy of an organization is based on the factors that will be related to the low cost of products and services as well as the differentiation of the products. Three main reasons are alluded to organizations outsourcing some of their functions. Loh and Venkatraman posits the main three reasons for the outsourcing by organizations are for strategic, economic, and for technological reasons. The main driver when it comes to economic factors is the cost reduction. Companies usually long to reduce the costs of production that they accrue and especially conversion of fixed costs into variable costs (Slaugther and Ang, 1996). They can get to develop a winning combination by combining resources from outside and those that they have within the organization.

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One of the other reason that organizations do outsourcing is the mitigation of the risks and the uncertainty (McLellan, Marcolin, and Beamish, 1995). It also aims at the improving of the performance of the business and to enhance customer service that they provide (Quinn, 2000). The other main advantages that a company accrues from outsourcing engagements is of the flexibility and convenience that it gives to the management, the scaling and fast pacing of the implementation of projects, the protection of technical risk, the improvement of productivity, and the service quality (Clark, Zmud, and McCray, 1995). Quinn (2000), asserts that an organization can better manage organizational knowledge and intelligence that it enables it to have more innovation and the introduction of new services and products.

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These units work to achieve plans that fit in to the wholesome plan of the whole organization. Outsourcing has its own challenges other than the benefits that it gets from outsourcing. Taylor (2007) defines the term risk as problems that are likely to happen that may affect adversely the project outcomes. Risk is a part of everyday expectations in the operations of the organization that may lead to negative outcomes and hazards for the organization (March and Shapira, 1987). The risks that may be experienced include the performance poor performance, customer disruption of the service, hidden costs that were not budgeted for. Lacity, Willcock and Rottman (2008), suggested that to outsource they are costs that are accrued in the transition. This involves the search of the supplier, the coordination and the negotiation, the management, and communication.

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To have a total lower costs, the work that is being outsourced should be large enough so that it is able to pay for the additional costs that are paid for in the transition process. Making of commitments for outsourcing must be done courteously. West Pac as a financial institution is involved in the outsourcing of some of its services to be done by other companies. Westpac as well as any other company that uses outsourcing can maintain their competitive advantage over other organizations because of the more productivity output that they have. Outsourcing provides for an organization to get the services that they are not able to get from their current working force. A company should be strategic in choosing the type of outsource that they need and the personnel or organization that would do so more effectively.

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