Trend Analysis: Outsourcing

With companies paying greater attention to costs and bottom lines today than in the past, many are turning to a new paradigm called outsourcing - contracting with firms or individuals who do not work for the organization and which may, in many instances, be located in developing countries (e.g., India, China, and Southeast Asia) where skilled workers earn a fraction of what their Western counterparts earn (Kirk, 2004). Driven in part by economics and in part by globalization, the outsourcing of many different functions and particularly of functions based on information technology (IT) represents a cost effective strategy that is appealing to many executives.

Whether it is called outsourcing or offshoring, the exodus of many jobs from the United States to locations where costs are reduced is troubling to politicians as well as ordinary American workers (Kirkpatrick, 2004). Economic forecasters suggest, according to one analyst, that as many as 10 million U.S. jobs could be at risk (Kirkpatrick, 2004). However, a recent study by the McKinsey Global Institute, an economics think tank, calculated that for every dollar spent on a business process outsourced to a country such as India, the U.S. economy gains at least $1.2. Kirkpatrick (2004) states that $.58 goes back to the original employer and other money returns home as earnings.

Former Secretary of Labor Robert Reich (in the Clinton administration) argued that the U.S. economy is experiencin

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or 3: Involve the corporate board early in the process. Factor 4: Compare the supplier's solution to external measures. Factor 5: Specify what is expected of the outsourcer at all points in the contractual relationship. It is clear, according to Bendor-Samuel, Furniss, and Simonson (2003), that a sole source process, once carefully designed and executed, can generate specific benefits for the outsourcing organization. A more streamlined process of contract execution, a quicker realization of benefits, and a stronger relationship are the key benefits of a sole source contract. However, sole source outsourcing is not necessarily the only or best strategy for outsourcing. Outsourcing is ideally a long-term relationship and larger companies such as banks and other financial institutions may find that two or even more outsourcers are useful. For example, call centers for customer service and other functions could be outsourced to one provider while the processing of bank checks or credit card statements and records could be outsourced to another company (Vijayan, 2004). One of the keys to successful outsourcing identified by Vijayan (2004) is to assign clear ownership and accountability for a project and to ensure

Category: Business - T