Literature Review
Discuss About The Outsourcing Buisness Function In Small Buisness?
The common trend utilised in today’s small business is outsourcing which is used for improving one or several areas in the business for smooth functioning. The term outsourcing can be defined as a practice or task provided for a company by another company which can be in form of manufacturing any product or service. It can also be termed as a process of delegating business processes to a firm which performs the given work outside the business area and manages the same according to the agreed criterion. It involves in getting service from outside business or organisation and requires sharing internal information with others. The main reason behind outsourcing is to reduce costs and provide flexibility in service or offered product along with enhanced quality (Anon., 2017). Few examples of small business firms who mostly outsource its business are management consultants, lawyers, small manufacturers, restaurants and universities. The outsourcing process can sometimes prove to be complex and consumes lot of time which delay in providing potential benefits to the owners. Although the rate of outsourcing had been increasing in the last decade, still there are few business owners who does not consider in having involved with others into their business. (Smith, 2012)This research will analyse and review the advantages and disadvantages of outsourcing business function in small business and will provide necessary arguments along with conclusions made.
In any business strategy outsourcing has become a common practice whether business is small or big. Many companies have started to outsource some of its works to others which was earlier performed by them (Iqbal, 2013). With its demand and increase it has been a common topic in the literature and reasons behind it have been identified by researchers. Although outsourcing is been successfully achieved by many companies, still there are significant risks that can be recognised if not outsourced properly. In any business, decisions regarding outsourcing are made after getting motivated due to several factors and reasons behind it. (Yeboah, 2013) The three major types of motivation for outsourcing is cost saving, strategic planning and politics of the country. The first two reasons are commonly faced by small business. Outsourcing for cost curtail takes place when supplier’s costs after delivering service’s are still lower than the present cost even after adding profit, overhead and transaction costs. (Kremic, 2006) The owners of small business require strategic management which enables them to expand their business and for that reason requires a team for management. By outsourcing some of its managerial part, it can get proper assistance without hiring full time management staff. Although there are many examples of possible savings that small businesses expects to recognize with outsourcing, but there is no assurance of getting expected savings (Kahrovi?, 2015). There are evidences which shows cost cutting sometimes have been overestimated and costs gone even higher. Therefore, to review the topic precisely, academic theory and research literature had been utilised which can provide assistance to small business owners and their advisors.
Project Objective
The main objective for outsourcing is that it reduces overall costs and saves the money in small business firms. There are many other benefits also like providing labour, information technology consultant, digital communication, financial consultants, change in product instantly, etc. Though there are many ways of resourcing, the reasons behind it may also be various. In any company constant improvement is very essential or else it may become outdated. Thus by involving outer source, which is also latest, will help in focussing overall improvement. The capability of small entrepreneurs can become inadequate if not accessed properly and according to world class capabilities. (Syluancia, 2009)The releasing of internal resources for other major purposes may provide business a scope for improvement and increase in time efficiency function which can be easily done by outsourcing some of its work to other companies. With maximising the use of outside resources, the company also shares risks with the associated company and thus reduces risk concentration. Although there are many reasons for outsourcing, before implementing it, companies must make sure of all the workings and find out if they are able to fulfil the desired goals as it may result in company’s failure since outsourcing involves few drawbacks also. (Riley, 2010)
Scope of utilizing outsourcing in small business is increasing day by day as people are getting more attracted on value added services in house and are more focussed to strategic management to maximise the use of its internal capability. It can be utilized in all kinds of businesses, for example in IT enabled service, outsourcing can provide services like financial consultants, advertising, courier service, customer support service, etc. (Pine, 2017)Another fine example of outsourcing in small business which is utilised nowadays commonly is outsourcing in restaurants since they are highly depended on collaborative effort for performing high quality customer service and successful outcome. Training of employees, kitchen etiquettes, introducing new and innovative recipes, appointing high quality staff, efficient customer service, interior designing of sitting area, market strategy, etc. are few areas which are outsourced in a restaurant business (Zeif, 2007). For any businessman it is very difficult to be good at everything. A confident business person may lack knowledge of cooking or a highly skilled chef may not be aware of marketing policies. Also services like door delivery and menu making requires a team who specializes in that category. Thus after recognising problems in a restaurant it can be said that outsourcing is the only way in which it can enrich its overall business.
Project Scope
In small business by outsourcing particular work to other companies or agencies by using Agency Theory can help in engaging more experts to the firm and increase in efficiency by improving performance. (Sonfield, 2014) As more people get engaged, things work faster. This is also an important reason for small business to outsource as it tends them to grow up into big entity in shorter time. If a company is working with limited number of employees, the work becomes time consuming. If it is outsourced with external agencies or freelancers the time taken will be reduced. Self liberty is enhanced by passing on opinionated tasks which enables the owner to concentrate in reinforcement of the core development of the business. Thus enables owner to focus on other important matters. In small business, the capability to realise risks is not much and sometimes can result in its shutting down. With the help of Economy of Information Theory, the owner can assign certain practice or function to experts of respective fields (Sonfield, 2014). Business might get benefitted from their expertise and reduce probable risks and can also get helped in sharing risks in related areas. In businesses like logistics and fast food restaurants in busy cities, it demands night services; outsourcing can prove very efficient as the business is carried on even when the owner is not present on the spot all the time. It might facade initial problems, but with the flow can bring extensive difference to the business. Utilising Core Competencies Theory is another effective way to enhance small business as outsourcing work to online websites, specialist freelancers and advisors provides lot of assistance in making plans for management and is mostly used for getting business managed strategically. It also saves lot of time and reduces cost of hiring special person for it and hence simplifies the work management. The Social Exchange Theory is another important theory which can be applied into small business. It brings in sharing of resources which can be tangible or material, and involves human interaction. With its help association is made and interconnectivity among similar business is increased thereby helping each other at the time of needs. The use of Evolutionary Economics Theory is another outsourcing advantage which company can take use of in which reduction of labour costs, taxes and the overall cost of production is enabled and applied. (Konstantopoulos, 2014)
Along with several advantages of outsourcing, there are few disadvantages also which should be considered while taking decision about implementing it. The most significant is that it results in loosing few areas of control. By delegating works to external agencies, the owner loses control on the performance of work. There is a great chance of fall back if the hired agency is suspicious. Thus becomes very crucial on the management part to tread cautiously. Big outsourcing agencies can sometimes asks small business owners to make contracts and sign lengthy agreements with fine print. If not read properly before signing, it may result in getting ripped off and end at getting adverse effects (Riggins, 2017). Normally lots of hidden costs are included in outsourcing business which is needed to be recognised carefully by small business owners. While outsourcing areas in internal management, personal data is required to be shared with outsiders that can lead to risk of safekeeping of data and increases security risks. Also the result product or service can sometimes lack quality as freelancers or external agencies may get motivated for profit making rather than high-quality job which results in reduced quality control. There are chances of delay in work also with increase in difficulties to synchronize time schedules with external sources which results in not attaining the product in desired timeline (Mol, 2009). Another disadvantage which a business may face from outsourcing is losing public morale. Although it is not common with all countries or in all sectors, still there are chances that outsourcing from foreign countries may not be taken positively and result in backlash. (Bucki, 2017)
Advantages of Outsourcing
In relation to the small business outsourcing, restaurants are good examples which can be taken for further understanding of the research. In restaurants, owners cannot do everything like cooking, cleaning, laundry, accounts maintenance, delivery, etc. Thus outsourcing becomes essential for hiring outside party to do the job rather than hiring full time staff for it. There are few areas which are normally outsourced in restaurants. In restaurants, dish rags, waiters coat, chef’s apron, table cloth etc. are few types of laundry which requires industrial strength cleaning. In order to ensure clean uniform service, it hires laundry service rather than putting entire effort on it. Kitchen maintenance is another important area of outsourcing in which cleanliness of the kitchen is ensured. While getting food out of it, the kitchen area needs to be clean and remain tidy along with detailed cleaning done three or four times a year in few areas like chimney, kitchen hood and behind the stoves. By hiring a professional maintenance company, the requirement of hiring extra staff for cleaning purpose is saved along with getting professional aid. (Mealey, 2016) Advertising about restaurant is very necessary to attract customers which can be done by hiring professional advertisers who can create exclusive hoardings and banners for restaurants in innovative ways. In today’s business, before selecting a company, customers do a detailed study of the company with the help of online websites. Similarly in restaurants, customers prefer looking at the menu or type of food offered before visiting it. For this, owners can outsource its web service to the professional website agencies and online available sites to make information reach to its customers. Although there are many restaurants that specializes in online services like MC Donald’s, KFC, Subway and Dominos, still it would always be better to outsource advertising part to other websites also. To hire Professional accountant is another advantage of outsourcing business as it helps in saving business money from taxes and other hidden costs. Since professionals gain more knowledge about country laws and regulations, they may get ways and methods to save money from tax exemptions without hampering business ethics. (Sherman, 2015)
Conclusion
After making a brief study about outsourcing, it is clear that without outsourcing, small business cannot gain consideration and development. It has become core in small business which has to be accepted by entrepreneurs. But due to some consequences, it requires deep concentration before selecting the right service provider and according to business needs. Each advantage mentioned in the review can help in the growth of the business. The proprietors are freed for reinvesting their time and force into their concern instead of getting upset about the services that have been outsourced. Even there are few risks involved; outsourcing eventually offers the owners many advantages. It helps in building of a team of skilled professionals and advisors without adding any expense of full time staff along with quick work completion. (Pellicelli, 2012) Thus by analysing probable risks and success realisation from outsourcing, it can be said that it is an inevitable method which can prove to be flourishing only if carried with great concern. Advantage which outsourcing carries are higher than its disadvantage which makes it more successful process in small business and is increasing day by day.
References:
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