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Outsourcing

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Outsourcing
BUS 630
Jessica Ankney
Professor Havens
November 19, 2012

Introduction
Outsourcing is seen in many different business areas in today’s market and can range from outsourcing personnel or entire projects. When determining if outsourcing is the right decision for an organization, costs and revenues must be analyzed to make an informed and smart decision. Should this step be overlooked, the organization could make a costly mistake by outsourcing when they would have seen more benefits by keeping the job in house. There are many benefits to outsourcing and can save organizations resources and money if done correctly.
Outsourcing - Personnel There are many more factors that need to be considered when analyzing outsourcing: health benefits, time off for the employee, employee pay, the job at hand (will the job be a short-term or long-term project). One of the first items an organization must determine is how long their project is anticipated to take. In the IBM article, they took over for Visteon Corp in making computers for Ford Motor Co. Visteon Corp can anticipate this to be an ongoing project as vehicles are not going anywhere, thus they had to determine which situation would be more beneficial: outsource the work to IBM or continue to make the computer systems themselves. Because Visteon is trying to diversify its business away from the auto industry, they found that outsourcing was their best option (Hechinger, 2003). In the case of IBM and Visteon, even though the project will be a long-term project, by the company analyzing costs and revenues and aligning their business strategies, this allowed them to make the decision to outsource to IBM. Even though project length may help in determining whether or not to outsource a job, this may not always be a determining factor. Should the project be determined that it will be a short-term project, an outsourced employee or company would probably be best as no benefits would apply. This will help to save the organization from having to pay for any health benefits, time off, etc. for the employee/s assigned to the project. One would think that if a project is projected to be a long-term project, an organization would want permanent employees to perform the roles. Should the project end prior to the original projected end date, that employee could then move on to another project. In my organization, there are project managers that are permanent employees and there are some that are temporary employees. For those that are permanent employees, they have excellent benefits such as health benefits, food places to eat on site, a gym and doctor on site, paid holidays and time off, life insurance, flexible work schedules and arrangements, competitive pay, and money for continuing their education. These are all costs that the organization must consider when determining whether or not to outsource the job and they must analyze them to see which is more beneficial for the organization.
Outsourcing – On a larger scale
Outsourcing is used in many areas of a business and more so in some businesses than in others. Outsourcing has seen a dramatic increase but what is driving the increase? Many could argue that outsourcing is cheaper than an organization hiring permanent employees to perform the job, which in many cases, could be true. In deciding whether or not to use outsourcing, the organization must look at the price of delivery services from an external company. Even though price is a major factor in determining whether or not to use an external company, the company must analyze costs and revenues to determine if the operating segment should be retained or outsourced. In analyzing costs and revenues, the company must look at their overhead expenses as well as the particular job cost of what would be outsourced.
When organizations choose to outsource certain projects to other businesses, such as Visteon Corp did with IBM, this can free up many resources and overhead expenses that an organization is currently utilizing in performing the tasks themselves. In some organizations, outsourcing could release the burden of many fixed overhead expenses such as machinery, salaries, rental of buildings, benefits, etc. The organization could also see release from many variable overhead expenses as well such as supplies and employee pay if employees are not salaried and work different hours depending on work load. Some organizations could even generate revenue if they were to outsource certain jobs as that could open up office space that they could lease out. In leasing out office space, this too could help to offset some expenses occurred in outsourcing.
Outsourcing in today’s IT World Just as Visteon Corp outsourced the making of computers for Ford Motor Co. to IBM, many other companies are choosing to outsource their IT needs as well. According to Peslak, thirty percent of the companies he surveyed outsourced IT and only twenty-five percent participated in offshore outsourcing IT (2012). These organizations felt that outsourcing was better suited for their organization due to IT not being a core competency of their organization thus reducing costs. By choosing to outsource IT work, companies can focus on what they are known for and do well instead of having to concentrate more resources on ensuring they hire those competent to perform the IT jobs necessary. “Outsourcing choices represent alternate ways for organizations to leverage available resources to increase the value of IT in meeting corporate objectives” (Jae-Nam, Miranda, & Yong-Mi, 2004).
Conclusion
Outsourcing is seen on a large scale in today’s IT world such as the Visteon Corp and IBM case but can also occur in smaller scales as well. Many organizations may choose to outsource personnel depending on the length of time a project is anticipated to take. When determining on whether or not to outsource personnel or a job, organizations must analyze costs to see if outsourcing will be beneficial for the organization.

References
Peslak, A. R. (2012). Outsourcing and offshore outsourcing of information technology in major corporations. Management Research Review, 35(1), 14-31. doi: http://dx.doi.org/10.1108/01409171211190788
Hechinger, J. (2003, Feb 12). IBM gets $2 billion outsourcing job --- most computer operations of visteon to be taken over as it diversifies from ford. Wall Street Journal. Retrieved from http://search.proquest.com/docview/398878777?accountid=32521
Jae-Nam, L., Miranda, S., & Yong-Mi K. (2004). IT outsourcing strategies: Universalistic, contingency, and configurational explanations of success. Information Systems Research, 15(2), 110-131. Retrieved from http://search.proquest.com/docview/208162478?accountid=32521

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