Page 33 - E1 Integrated Workbook STUDENT 2018

Organisational structure

6.3 Outsourcing

Outsourcing means contracting-out aspects of the work, previously
done in-house, to specialist providers.

Advantages Disadvantages

 The supplier may benefit from  May be more expensive.
economies of scale.
 Loss of competitive advantage if
 The organisation will benefit from core competency is outsourced.
reduced costs such as capital
expenditure, headcount and  Transaction costs incurred
research and development costs. through specifying requirement, co-
ordinating delivery and monitoring
 The supplier may have specialist quality.
skills.
 Finality of decision.
 The organisation can focus on its
core activities.  Risk of loss of confidential
information or risk of continuity of
 The organisation can switch supply.
suppliers based on changing cost/
quality considerations.  Difficulty agreeing/ enforcing
contract terms (need a robust
service level agreement, i.e. a legal
agreement between the supplier
and the company regarding the
level of service).

 Damage to morale if redundancies
are made in the organisation.

Business process outsourcing (BPO) is a subset of outsourcing
and involves the contracting out of specific business functions such
as IT or HR.

21