Essay About Decision Responsibility And Firms Internal Activities

Outsourcing
Essay Preview: Outsourcing
Report this essay
Outsourcing is the act of moving some of a firms internal activities and
decision responsibility to outside providers. The terms of the agreement are established in a
contract. Outsourcing goes beyond the more
common purchasing and consulting contracts
because not only are the activities
transferred, but also resources that make the
activities occur, including people, facilities,
equipment, technology, and other assets, are
transferred. The responsibilities for making
decisions over certain elements of the activities
are transferred, as well. Taking complete
responsibility for this is a specialty of contract
manufacturers such as Flextronics and
Solectron. In the electronics industry, for example,
11 percent of manufacturing is performed
by such contract manufacturers,
many of whom manage the full supply chain,
even including distribution and repair.3
The reasons why a company decides
to outsource can vary greatly. Exhibit 9.6
lists 20 examples of reasons to outsource
and the accompanying benefits. Outsourcing
allows a firm to focus on activities that
represent its core competencies. Thus, the
company can create a competitive advantage
while reducing cost. An entire function
may be outsourced, or some elements of an
activity may be outsourced, with the rest
kept in-house. For example, some of the elements
of information technology may be
strategic, some may be critical, and some may be performed less expensively by a third
party. Identifying a function as a potential outsourcing target, and then breaking that function
into its components, allows decision makers to determine which activities are strategic
or critical and should remain in-house