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Business organisation and policy - Essay Example

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Many firms export the costs through activities like subcontracting for the other independent firms or passing on the responsibility of their internal activities to the independent units. These companies are generally the manufacturing companies which have complex operational…
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Business organisation and policy Many firms export the costs through activities like subcontracting for the other independent firms or passing on theresponsibility of their internal activities to the independent units. These companies are generally the manufacturing companies which have complex operational functions. The internal subcontracting is realized through the neighbour projects and are connected together in terms of deadlines or schedules. Subcontracting is also another way of outsourcing the internal activities such as manufacturing or supply chain management. Companies not only give sub-contracts because they want to reduce cost but many times they do so in order to reduce complications in their major company operations. Moreover, when large companies expand their limits considerably they wanted to focus on more important activities in the business function rather than small internal functions. Outsourcing also functions on similar concepts.
It has been seen that companies have increased their outsourcing and off-shoring dependency. These arrangements include both rewards and risks to the companies, but outsourcing is not an easy task. There are certain steps with the help of which the risks can be minimised and rewards can be earned at each and every stage. The term outsourcing means contracting external providers for performing certain functions for the company. This includes services related to information technology, development, maintenance, support or production. There are BPO (business process outsourcing), call centres and human resources. The key drivers that can be considered for outsourcing functions is generally to reduce the operating cost, development, increasing sales and reduction of other internal costs of the company. The focus is more on the core competencies and when the company focuses on tapping the vendors to integrate the best practices and innovation. Increasing the scalability and the flexibility of the operations or for gaining access to low cost human capital might also be a driver for outsourcing (Ernst & Young, 2005, p. 10-12).
It should be kept in mind that most of the time outsourcing fails due to various reasons. Outsourcing comes with certain combination of risk and benefits. If they are not well managed then both internal and external risks can adversely affect the performance of the business. In order to deal with the complex risks, companies must go for holistic risk management approaches. In this regard the issues of outsourcing life cycle can be included. Each stage of this life cycle describes the specific tools and techniques for mitigating risks. The stages of the life cycle are as follows:
Strategic assessment: It helps in deciding that in which way strategic management may support the business strategies and also regarding the internal capabilities and support initiatives.
Development of business case: It helps in analysing the expected cost and the savings. The other financial and the operational benefits can also be understood by developing a business case.
Selection of vendors: Selection of vendors is very important function, which requires strategic assessment and also the support of a strong business case.
Contracting: Negotiation in contract is also essential as it contains the expectations and the need of both the parties in the contract, with respect to the risk assessments.
Service alteration, Deliver and after transition management: This stage includes managing the migration process, initiation and development of the services in the off shore location. Moreover, monitoring the performance management and risk in accordance to the service level agreements and attaining the strategic objectives (Deloitte, 2005). The best example of outsourcing can be stated as London Olympics 2012, as about 91 percent of the Olympic consisted of not Made in Britain tag. Even the Olympic souvenirs were not manufactured in Britain, but in China. About 194 products were manufactured in China. UK outsourced its functions and operations to foreign countries to save time and also to reduce its cost (Warrell, Neville and Palmer, 2012).
References
Deloitte, 2005. The Intelligent Approach to outsourcing and Offshoring. [e-book] Australia: The Institute of Chartered Accountants. Available through: Deloitte & Touche USA LLP and its Subsidiaries [Accessed 13 September, 2012].
Ernst & Young, 2005. Business Briefing Series: 20 Issues on Outsourcing and Offshoring. [e-book] Australia: The Institute of Chartered Accountants. Available through: Ernst & Young website [Accessed 13 September, 2012].
Warrell, H., Neville S., and Palmer, M., 2012. ‘High Risk’ Groups Face Outsourcing Ban. < http://www.ft.com/intl/cms/s/0d1595d6-fb6f-11e1-b5d0-00144feabdc0,Authorised=false.html?_i_location=http%3A%2F%2Fwww.ft.com%2Fcms%2Fs%2F0%2F0d1595d6-fb6f-11e1-b5d0-00144feabdc0.html&_i_referer=#axzz26WD99aPy> [Accessed 13 September, 2012]. Read More
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