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Strategic Management: Outsourcing and the seven major outsourcing errors that should be avoided

What is outsourcing?

What are the seven major outsourcing errors that should be avoided?

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Outsourcing refers to an organization contracting out one of its business function to an external provider (Overby, 2007). The process of outsourcing involves two organizations mutually entering into a contractual agreement involving an exchange of services and payments.

Organizations in different sectors of industry outsource a wide variety of business functions for the following strategic reasons:

- Cost savings: An organization may decide to outsource a certain business function to reduce administration, labor, and other operational costs. Several organizations such as Sirion Therapeutics Inc. a pharmaceutical firm outsources manufacturing activities to reduce fixed costs and to focus on its core competencies.

- To focus on core business functions: Outsourcing enables organizations to focus on what they do best. It ensures organizations effectively utilize resources i.e. capital, people and infrastructures on building the core business.

- Cost restructuring benefits: Outsourcing helps organizations enhance operating leverage by ensuring that the fixed costs of the firm does not outweigh the variable costs.

- Improve quality: Outsourcing enables organization to improve quality of products or services offerings to customers. An organization may decide to outsource manufacturing activities to a third party because of the superior technical and man-power the outsourced firm possess.

- Knowledge management practice: Outsourcing enables organizations tap into the ...

Solution Summary

The seven major outsourcing errors that should be avoided is determined