The Advantages, Risks and Challenges of Outsourcing Strategy

Organizations, recognizing that they cannot be world class in every activity and function involved in producing their products and services, are moving toward business strategies based on "core competencies"- a set of "skill and knowledge" that help maintain their competitive advantage in serving customers. Outsourcing is promoted as one of the most powerful trends that improve organization efficiency and growth. Outsourcing was defined as the operation of shifting a transaction previously-governed internally to an external supplier through a long-term contract. The most common benefits of outsourcing are: downsizing, cost savings, restructuring costs, focus on core business, quality improvement, operational expertise, access to talent, capacity management, and risk management. Nowadays organizations focus on core competencies and downsizing and try to outsource other activities to external provider. Also outsourcing helps organizations to achieve new organization's structure like flat organization and fast response organization. This article is aimed at presenting the advantages, risks and challenges of outsourcing strategy. After an introduction with outsourcing, a definition of outsourcing, outsourcing history and a review of outsourcing's features will be presented. In the following sections, we examine the motives and risks associated with outsourcing operations and propose a number of recommendations that require managers to focus on implementation of outsourcing operations. Also the advantages and disadvantages of outsourcing are reviewed and a framework for the service activities of outsourcing will propose. The proposed framework considers moderator and independent variables of outsourcing and how they affect service activities. The outsourcing model for service activities emphasizes different service aspects and is also simple and holistic.