Outsourcing and the Extended Organization
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Outsourcing and the Extended Organization
As global businesses have become more complex and dispersed, effective coordination of activities and processes within and between organizations has become an ever more urgent priority. Imagine that you manage a company supplying educational resources to students studying online. Consider the potential advantages of outsourcing capabilities currently performed within your organization.
Develop an appropriate strategy to capitalize on these advantages and identify the key relationship goals. Then, go on to discuss the challenges of inter-functional and inter-organizational coordination. To what degree has information technology facilitated, or hindered, such coordination?
Resources
Articles
• Gottfredson, M., Puryear, R., & Phillips, S. (2005). Strategic sourcing from periphery to the core. Harvard Business Review, 83(2). Retrieved from Business Source Premier database.
The authors contend that outsourcing is becoming so sophisticated that even core functions like engineering, R&D, manufacturing, and marketing can and often should be moved outside the organization.
• Gosain, S., Lee, Z., & Kim, Y. (2005). The management of cross-functional inter-dependencies in ERP implementations: Emergent coordination patterns. European Journal of Information Systems, 14(4). Retrieved from ABI/INFORM Global database.
This report presents primary data related to Enterprise Resource Planning (ERP) implementations at four large organizations representing different industries and implementation strategies.
• Chi, L., & Holsapple, C. (2005). Understanding computer-mediated interorganizational collaboration: A model and framework. Journal of Knowledge Management, 9(1). Retrieved from ABI/INFORM Global database.
This article takes a systematic view of collaboration between different organizational systems and offers an integrative model supported by empirical examples of key issues.
Kim, D., Cavusgil, S. T., & Calantone, R. J. (2006). Information system innovations and supply chain management: Channel relationships and firm performance. Journal of Academy of Marketing Science, 34(1). Retrieved from ABI/INFORM Global database.
This article reports the effects of innovation in supply chain communication systems on channel relationships and market performance. The hypothesis is that certain innovations can enhance channel capabilities, and hence an organization’s market performance.
Web Site
Norta, A. (2007). Exploring Dynamic Inter-Organizational Business Process Collaboration. Retrieved from http://alexandria.tue.nl/extra2/200710444.pdf
This paper puts forth a thesis exploring how to put into effect dynamically composed inter-organizational business processes.
SAMPLE ANSWER
Outsourcing and the Extended Organization
Given the expanding set of activities that take place within the modern organization, more and more companies are looking into subcontracting some of their operations to external firms. Outsourcing can encompass some or all activities of the organization, including but not limited to research and development, product design and manufacture, marketing and distribution, and after sales services (Kim Daekwan, 2006). In this case, outsourcing involves developing a bilateral relationship with an external partner, to undertake certain investments on behalf of the company, and to manufacture products that meet the company’s specific needs, whether on-site or off-site.
For an organization supplying educational resources to students studying online, outsourcing can mean huge cost savings for the organization among other benefits, and may occur for different activities within the whole value chain. In most cases, a company can experience serious problems with document handling and choose to outsource the services of an external company. These services will range from scanning and storing documents electronically to creating a central database where all users can easily access them.
There are several potential benefits to the outsourcing capabilities currently undertaken at the organization. For one, the organizations from which the products are outsourced are likely to enjoy economies of scale, which translate into huge cost savings for the organization. Second, through outsourcing, the organization benefits from cost restructuring that allow it to avoid certain fixed overheads associated with in-house production. Another advantage is that through outsourcing, the organization can concentrate on the quality of its products rather than support services through the expertise and technological capabilities of its external partner. Being that the outsourcing contract is fixed, the organization also avoids issues as financial risks, and price shifts.
The key to developing an appropriate strategy to capitalize on these benefits lies in the flexibility of the organization, capacity to carry out activities in-house and the available skill set. According to Harmon’s Process Strategy Matrix, all these depend on the complexity and dynamism of the process and its strategic importance. Outsourcing is not recommended where the process is of high strategic importance to the organization. In this case, the organization cannot outsource IT or similar technological services, as it is the backbone of its operations and a source of its competitive advantage.
Before the onset of the outsourcing, it is necessary for the organization and the external party to agree on expected outcomes to avoid misunderstandings. Since there may be no clear measure for comparing the outcome of outsourced products and those produced in-house, both parties should develop a standard that guarantee quality and value for money (Norta, 2007). These standards should consider process activity and information flow, performance, and management.
There are several challenges that arise because of inter-functional and inter-organizational coordination. The main challenge often is physical proximity to the external partner, but this has become irrelevant with increased globalization and technological advancements. For such functions as R&D, transaction processing and similar support services, the internet and improved telephone infrastructure has made work easier and cost effective (Mark Gottfredson, 2005). Because of information technology, the organization can carry out a majority of its transactions electronically at high speeds and minimum cost. Another challenge is the dynamic nature of the supply chain. Given that the needs and preferences of customers change with time, it is inevitable that this will have an impact on the supplier-distributer relationship. It is vital that both parties recognize that the bilateral relationship will also evolve and provide contingency measures for when this happen.
References
Kim Daekwan, T. S. (2006). Information System Innovations and Supply Chain Management: Channel Relationships and Firm Performance. Journal of the Academy of Marketing Science , 40-54.
Mark Gottfredson, R. P. (2005). Strategic Sourcing: From Periphery to the Core. Havard Business Review , 132-145.
Norta, A. H. (2007). Exploring Dynamic Inter-Organizational. Retrieved February 17, 2015, from http://alexandria.tue.nl/extra2/200710444.pdf
Sanjay Gosain, Z. L. (2005). The management of cross-functional inter-dependencies in ERP implementations: Emergent coordination patterns. European Journal of Information Systems , 371-387.
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