Case Study: Outsourcing for the Benefit of the Business

What is Outsourcing?

According to Kroenke, “outsourcing is the process of hiring another organization to perform a service. Outsourcing is done to save costs, to gain expertise, and to free management time.” (Kroenke, 2018). This is a way for one business to benefit off another business. In the scenario of developing the Cloudera, deciding between Canada and India is a big decision. Since no one at the company currently has any experience in developing this system, the company’s management team will have to outsource. They will use someone from another country to develop this system and give it back once it is completed. Sometimes outsourcing can be cheaper, and in return can help train the current employees on what needs to be done next time. Canada would be a smarter choice due to the culture bases of work being similar to the united states. There would be no language barrier and also the time zone for communication would not be as much an issue as it would be in India.

According to Deep Patel’s article, The Pros and Cons of Outsourcing, he stated, the pros and the cons of outsourcing. Some advantage’s according to Patel are, you don’t have to hire new employees, access to a larger talent pool, and lower labor costs. (Patel, 2017). Without needing to hire more employees, you save the costs on salaries and training of new employees, or hiring other management teams to come in and provide a training seminar for your management team. You also have access to so much more talent from all around the world, making your possibilities endless when it comes to ideas and knowledge on a certain field. With the economy different in every country around the world, labor costs will be very different. Some may be little to no labor cost, so outsourcing to those experienced countries will save money for your business. When dealing with your own country, sometimes the labor costs will be higher due to the convenience instead of the knowledge how well they work.

Some of the disadvantages are lack of control, communication issues, and problems with quality (Patel, 2017). Lack of control can be a big issue. You are not with the outsourced company, so having your word on how things work or will run cannot happen. When outsourcing to either Canada or India, communication is key. You have to see who provides the best quality work, and who takes input on the development better. With a language barrier in India, this can cause some concern. But their quality of service may be better than Canada’s, so you have to look at the pros and the cons of both locations before accepting a bid for that location.

One Company’s Back Room is another Companies Front Room?

In the uCertify text, Peter Ducker stated that one companies back room is another company’s front room. (Kroenke, 2018). This means that when you have a non-essential location in your workplace that doesn’t necessarily affect the outcome of your business, then you would label this as the back room of your company. One that isn’t seen, and one that doesn’t benefit directly to your overall business’ mission. An employee for Facebook in Palo Alto California stated, “Amazing food. We get breakfast, lunch, snack, and dinner served up by the best chefs around. Menus change daily and my favorite to date has been the Willy Wonka themed lunch menu. Sushi day is legit too.” (Rogers, 2011). Facebook is not known for their food meals given to their employees, but only the social media aspect. The meals don’t make the business successful, but the employees doing the day to day transactions do. The food services at Facebook would be a back room. Now, a catering company whose sole purpose is to provide food to people would be the front room of that business, their focal point. For example, the business Leading Caterers of America (LCA) strictly caters for events in business, weddings, social, and many more. They also have many locations across the nation for your convenience, Since the LCA only caters food services, this is their front room. This is what people see first and their only task. So, when Peter Ducker said, “one companies back room is another company’s front room. (Kroenke, 2018),” he meant that some businesses have non-essential, hidden, capabilities that have no significant impact on the success of a business while that non-essential capability is another business sole purpose and function, making it their “front room.”

Management Advantages, Cost Reduction, and Risk Reduction of Outsourcing

Management advantages is as simple as what a company will save when it comes to the development of the product. What will the business gain from outsourcing that will help their management team save time, money, and stress? When you have a business that does not have the knowledge needed for a certain purpose, then you will have to either hire new employees, costing money, or provide training to the employees which will cost the company time and money with having to provide sourcing of the training and hiring the personnel to conduct the training. So, management saves time and money with outsourcing to other businesses who already have knowledge on the product. Now, India and Canada have some knowledge on the Cloudera platform that the organization doesn’t have, so it is smart to have those two work on the product for you at a fraction of the price.

Cost reduction is also a key factor in outsourcing. According to Kroenke, “with outsourcing, organizations can obtain part-time services. Another benefit of outsourcing is to gain economies of scale.” (Kroenke, 2018). When a company outsources to another country, who’s economy is not as strong as ours, their labor costs and production costs will be far less because it will match their economy. Also, instead of the business developing the Cloudera platform on their own, they will use either Canada or India. When other companies use them as well, they will manage the updates and software upgrades and have a set price for businesses to purchase from. This way, individual businesses don’t have separate costs for the same product.

Risk reduction is when a business uses outsourcing to provide guaranteed quality control. When you are working on something for your company that you or anyone else have never don’t before, the end result may not be up to par for the management team. This will cause stress, frustration, and hinder the business’ capabilities. Outsourcing to Canada or India will assist this organization in providing great quality control. The company will hire, out of the two, the one that provides the best quality of work for the cost. By going with a company that has done this type of platform before, then your risk of failure is lower. Also, in return, saving the company money.

Control, Long-Term Costs, and Exit Strategy

Loss of control is a major risk when it comes to outsourcing. When you go with another business to provide your intended product, and in a different country, they are in total control of what happens with the product. So, you are at the mercy of a different organization, and entrusting them in providing you with the product you intended. If they do not come through, you still have to pay them for the work they have done. So, control is lost when you outsource to another company. When looking into India or Canada, the organization will have to look at other products they have made and look at the reputation of the company to make its final decision.

The long-term costs associated with outsourcing will also have to be looked at. When the company starts working on your product and you provide the necessary materials they had requested, the cost can and more than likely go up. What will happen when the company requires more materials for the Cloudera platform. You will have to pay all those additional fees and amounts needed for those materials. Plus, what if there is shipping? Then you have to pay all shipping costs associated with the outsourcing company’s needs.

Exit strategy for a business is crucial and something many don’t think about. You will need an exit strategy because of many reasons. One important reason is that this developer knows your company inside and out and can cause a hazard for your business. What if you want to go with another vendor, you have to shut down the system and have the new vendor create a platform of their liking. Your employees will not be happy. Most of the time, selecting an outsourcing company is one sided, and not smart to change. Like Kroenke stated in the textbook, “In truth, choosing an outsource vendor can be a one-way street.” (Kroenke, 2018).

Which Company, Canada or India?

When selecting a company for my organizations outsourcing needs, I would personally go with Canada. Yes, the company fees are a little more, but the location and language as far as culture is almost the same as the United States. With India, the time-zone will provide a challenge. When you communicate with a Country on the other side of the world, you have to do so either by email or facetime chats. But, you also have to understand the culture as well. Does the India business prefer emails, or do they find them less personal? Would they take offence to facetime, or would they rather communicate from emails? Communication with the time zone as well as the language will be a huge hurdle to overcome, and a more time consuming one. Canada speaks English and has a time zone the same as ours, so communication and understanding would be extremely simple and easier to do. It will be easier to travel to Canada, if needed, than it would be to travel to India and have to pay for interpreter. Canada would be my business of choice due to language barriers, cultural similarities, and time-zone similarities.

References

Kroenke, D. (2018). Using MIS (10th ed.). New York, NY: Pearson

Patel, D. (2017). The Pros and Cons of Outsourcing. Forbes. Retrieved from https://www.forbes.com/sites/deeppatel/2017/07/17/the-pros-and-cons-of-outsourcing-and-the-effect-on-company-culture/#767fddd2562d

Rogers, A. (2011). GOOGLE, FACEBOOK & MORE: These Are the Best Office Cafeterias In America. Business Insider. Retrieved from https://www.businessinsider.com/the-companies-with-best-food-2011-10