What Is Outsourcing

What is Outsourcing? It is a method in which companies subcontract labor and support to outside agencies (Klepper, 1997). How, why, and who companies outsource to are quickly becoming social topics of discussion in our society. Everyone seems to have an opinion on outsourcing. I bet that I can walk into a social gathering right now and hear discussions like "outsourcing is good for the American consumer" or outsourcing takes jobs away from all of the hard working Americans." In either case, outsourcing has raised great concerns over its effects on the American economy. In this paper, I will discuss the types of outsourcing, pros and cons associated with outsourcing, management views of outsourcing, employee views of outsourcing, and give my opinion of outsourcing.

What does outsourcing do? It enables companies to focus on the mission at hand, to save money and be competitive. Depending on a Company's needs determines the type of outsourcing that company may use (Embleton, 1998). Outsourcing is a very diverse market, and there are many different outsourcing options from. Two common types of outsourcing I will focus on are Information Technology (IT) outsourcing and Business Process Outsourcing (BPO) (Bowen, 1998).

Through research, I found that Information Technology (IT) Outsourcing is a rapidly growing market. I.T. outsourcing enables companies to continue to manage their core business, while outside agencies manage their technology needs (Bowen, 1998). It's a way of getting rid of those high paid, college graduated employees. I.T. outsourcing allows companies to use cost-cutting methods to cover computing needs, large mainframe and midrange data center, manage numerous networks and run desktops across the globe (Bowen, 1998). Advantages of outsourcing information technology include, but are not limited to, less capital expenditure, less management headache, and keeping focus on core competencies. Less capital expenditure means a company does not have to buy expensive hardware and software. Less management headache relieves companies of having to hire and manage accounting personnel. Keeping focus on core competencies affords companies' time to strengthen and gain a competitive edge over the competition (DiRomualdo, 1998). Disadvantages of outsourcing information include less managerial control, may be more expensive, and Security and confidentiality issues. Less managerial control means it may be harder to manage the outsourcing service provider as compared to managing your own employees. Also, it may be more expensive to outsource. Sometimes it is cheaper to keep a process in-house as compared to outsourcing. Security and confidentiality concerns may arise, especially with payroll and confidential information such as salary (Earl, 1996).

BPO is similar to information technology outsourcing but includes outsourcing related to accounting, HR, benefits, payroll, and finance functions and activities (Embleton, 1998). Business Process Outsourcing (BPO) is a decision to subcontract some or all important, non-core, business processes. This allows companies to invest its time, talent, and capital on basic business strategies that help company growth. Better and more affordable services become available for consumers and taxpayers (Embleton, 1998). Outsourcing allows companies to operate on an around-the-clock, 24/7 production cycle, further adding to productivity (Embleton, 1998).

No matter what type of outsourcing a company uses, there is a see-saw effect, someone on the high and low end. There are pros, cons, positives and negatives. For example, if you are a cost-cutting director at a competitive company, the mention of

outsourcing, especially offshore, may bring a smile to your face. For computer programmers, call center workers, or factory workers the reaction is likely to be more negative. The primary pro is that outsourcing jobs outside of the U.S. may help to encourage trade and actually create a stronger economy in the U.S., and later on down the line, more jobs (Nicholas, 1998). There's a theory floating around that once lower-skilled jobs leave the U.S., the higher valued jobs are left for the Americans to grab. However, this is tough for hard working Americans to swallow who are staring unemployment in the face (DiRomualdo, 1998). Why do people hate outsourcing? It is because of the lost jobs. While researching on the Internet, I found that there are two main reasons for the major disapproval of outsourcing. Job loss is obviously the number one reason, but another is inferior quality of service (Strassmann, 1995). I'm sure many people have dialed into call center with problems with a particular product or service only to find a foreign customer service that just learned to speak English. But, in order to compete, companies know they need to send jobs outside of the U.S. to countries like India and South America. This is also causing Indian workers, both here and in India, to worry about the possible repercussion of American opinion and to fear the political backlash against what they see as a boost to their own economy (Strassmann, 1995). The loss of jobs here in the U.S. even in the midst of a strengthening economy, is obviously a negative result of outsourcing. Although the global outlook supports outsourcing in IT and manufacturing, Americans worker are fighting to resist the push to send jobs overseas (Strassmann, 1995). Although it has not yet passed in the Senate, there is a movement to limit the outsourcing of work paid for with federal funds. Democrats are using this political lever in campaigning against the difficult economy under President Bush (Hayes, 1994).

Within the pros and cons of outsourcing, there are different viewpoints. There's the company's stand on outsourcing and the laborer's stand on outsourcing and trust me, they aren't the same. Most companies feel there are a lot of advantages to outsourcing, especially offshore. First of all, outsourcing saves companies a lot of effort and money. But companies also benefit from having more time to focus on what they need to do to remain competitive (Embleton, 1998). Another huge advantage of outsourcing is time. For example, because of the time difference between the US and India, companies that send work overseas can often have results as early as the next morning. Generally, companies that outsource can save anywhere from 20 to 40 percent in cost because of wage differences (Embleton, 1998).

Obviously, a lot of American workers who lose their jobs to workers in offshore countries are angry. But realize a computer programmer in the U.S. makes an average of $60,000 a year compared to an Indian programmer who makes $12,000 a year (Bowen, 1998). With that being said, it's easy to see why many companies are turning to offshore outsourcing.

On the other hand,