Q 5 : Is outsourcing helpful in achieving and/or maintaining competitive advantage?

In favor: Outsourcing is beneficial because it helps organizations focus on their core competence and not be detracted by activities that may be better performed by other organizations. Against: IT is a core competence in a knowledge economy and the loss of the ability to execute IT projects, in the long term, will hurt the competitive position of the organization.

A firm attains competitive advantage over its rivals in the long term when it consistently earns profits that are greater than the average profits for its industry standards or consistently provides benefits that exceed the services or products offered by its rivals. A firm that has capabilities good enough to utilize their existing resources to their utmost potential is mostly likely to have competitive advantage over its rivals. If that was not the case, then the rivals could simply replicate whatever that particular company is doing and any sort of advantage that one company has over another would quickly disappear [1]. Outsourcing ,on the other hand, is the process of shifting a process, that used to be performed previously within the organization ,to an external , independent organization that specializes in that process[2].Outsourcing can be done either with the help of an organization within the country or with the help of an organization outside the country .One of the major reasons for outsourcing outside the country is to utilize the cheap labor that specific countries(mainly Asian countries) offer, and therefore reduce the overall costs for the processes or the services being bought .Moreover , the differences in time zone ensures that work will get done in another part of the world inspite of the company closing down in the evening. Outsourcing also gives the advantage of reducing administrative functions and the time required to maintain these functions for the company and helps the company focus on its strengths; thereby bringing more productivity and efficiency. Since the organization, being entrusted with the outsourcing, already focuses or specializes on the outsourced functions, hence the company does not have to go into the pains of finding or hiring skilled labor or investing time into these trivial tasks .Moreover outsourcing also helps the company to distribute the risks associated with the outsourced functions to the other company and hence reduce its responsibilities to a certain extent [3].By outsourcing non-critical processes or non-essential work to an organization that already specializes in that work , the company frees valuable resources with the help of which it can focus on its core competencies[4].Moreover , around the clock work being in different places of the places of the world helps the company achieve good quality work at a fast pace. For the reasons that have been discussed, Outsourcing can therefore be considered a good business strategy . But the outsourcing strategy, if not properly planned and implemented, has proven over time to have its limitations and unintended consequences which can easily turn it into a bad business strategy [5].

One of the conditions discussed earlier for a sustainable competitive advantage was to attain that state of excellence in resource utilization and managing them so that it cannot be easily replicated by other competitors in the industy.However outsourcing can be easily replicated by other companies and even though outsourcing does have more benefits for companies that adapt to it first, it does not, in anyway, prevent the other companies from adapting to it later on. For e.g. If a company like HP saves cost by outsourcing- the manufacturing of the base printer of its printers supply chain from Japan , then a competitor like Dell can follow the same strategy very easily[5]. Outsourcing is the cause of fragmentation and disintegration of the supply chain .More and more activities that are being outsourced changes the supply chain from a single integrated system into a a collection of separate and disjointed activities turning it into a disintegrated process performed by several independent companies. And this in turn increases the chances of entry of new company into the industry; and thereby increasing the chances of a shorter product life cycle and more intense competition. For eg. Iif HP designs and manufactures a printer that has a disintegrated product life cycle (i.e outsourcing each and every part and feature from different , independent organizations) ,then any other company which has no ability in producing printers (or any other product for that matter ) can apply the same strategy and come into the market as HPs competitor. And even if the organization only focuses on its corecompetencies and only outsources its non-core areas, the organization is most likely to develop complacency in only doing what it does best. This prevents new, innovative ideas from taking shape and the markets of the existing products eventually reach a saturation point, thereby leading to negative consequences [5]. Moreover, outsourcing has high chances of negatively impacting customer relations as well .For e.g If the customer hires a highly reputed cleaning company to clean their restrooms but some independent contractor comes and cleans it instead, then the customer might feel cheated ;specially if the contractors service does not live up to the reputation and brand name of the company that hired them .Thus, extreme outsourcing can turn good organizations, which originally created something of value , into opportunistic profit making organizations which dont really care about the end users satisfaction[5]. All that being said, how much of a process should be outsourced to make it a good strategy really depends on the kind of industry or the kind of market the product targets. The push-pull boundary of the product should also be analyzed carefully and the decision to outsource or not

should depend on several factors. In light of the issues discussed, Im of the opinion that outsourcing, even though has some positive aspects to it, is NOT really the key to attaining sustainable competitive advantage over other organizations.

References

1.http://www.quickmba.com/strategy/competitive-advantage/ 2.http://www.ventureoutsource.com/contract-manufacturing/information-center/terms-anddefinitions/3/ 3. http://www.outsource2india.com/why_outsource/articles/benefit_outsourcing.asp 4. http://www.aipmm.com/html/newsletter/archives/000059.php 5. http://www.forbes.com/sites/panosmourdoukoutas/2011/12/09/the-unintended-consequencesof-outsourcing/