As a manager of an organization, you will often need to find ways to cut costs. One way to cut costs is to outsource by hiring another organization to perform the service. Consider the following scenario:
As a manager for the public outreach department, you realize that the current system for managing outreach issues is outdated. You would like to have a new outreach system developed using the Cloudera platform to help manage 'big data.' However, no one in the organization has the expertise. You will have to outsource the project to save on costs and avoid management problems. Two companies have sent in a bid, one from Vancouver, Canada and one from Mumbai, India. The bid from India was slightly lower than the bid from Canada. Compose a response that includes the following elements:
Define what is meant by outsourcing.
Explain how Peter Drucker’s statement (covered in the textbook) about how one company’s back room is another company’s front room pertains to outsourcing. Use an example.
Summarize the management advantages, cost reduction, and risk reduction of outsourcing.
Summarize the outsourcing risks concerning control, long-term costs, and exit strategy.
Discuss which company you would outsource to and why. Does distance matter?
Sample Solution
Outsourcing is the practice of contracting with an external organization to perform services or functions that would otherwise be performed by internal staff members. Outsourcing is a common business strategy used for cost savings and efficiency as it allows organizations to save money on labor costs and leverage outside expertise when needed.
Peter Drucker's statement about how one company's back room is another company's front room pertains to outsourcing in that companies can outsource their work needs to other countries, which then become their 'front room'. For example, if an American company needs software development done, they may outsource the project to India where there are more qualified professionals at a lower cost than within America leaving India as the "front room" providing services while America remains its "backroom".