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Explain the effects of outsourcing on an organisation. - Scottish Highers Business Management - Question c - 2022
Question c
Explain the effects of outsourcing on an organisation.
Worked Solution & Example Answer:Explain the effects of outsourcing on an organisation. - Scottish Highers Business Management - Question c - 2022
Step 1
Specialists can be used to do the work - which should mean better quality
Answer
Outsourcing allows organizations to hire specialists who have expertise in specific areas. This can lead to improved quality of work because these specialists are often more skilled and experienced than the organization’s in-house staff. Consequently, the final product or service provided can meet higher standards, resulting in greater customer satisfaction.
Step 2
Reduced staff costs in the area that has been outsourced - which may result in increased profits
Answer
By outsourcing certain functions, organizations can reduce labor costs as they do not need to employ full-time staff for those roles. This reduction in overhead can lead to increased profit margins, allowing firms to reinvest savings into other areas of the business or improve their financial performance overall.
Step 3
Outsourced companies will have their equipment - which would mean the organization does not need to purchase specialist equipment - which will reduce fixed costs
Answer
When an organization outsources, it eliminates the need to invest in specialized equipment. The contracted company typically provides the necessary tools and machinery, reducing the organization's fixed costs. This reliance on external resources reduces the capital burden on the company.
Step 4
The specialist company can gain economies of scale - which will enable the client company to quote a cheaper price
Answer
Outsourcing to specialized companies often allows firms to take advantage of economies of scale. When specialists have larger operations, they can produce services or products at a lower average cost, which can lead to more competitive pricing available to the client organization.
Step 5
Focus on core activities - which should improve the organisation producing a better core product/service
Answer
By outsourcing non-core functions, an organization can focus on its main activities. This concentrated effort can enhance efficiency and performance in core areas, ultimately leading to an improved product or service offering for customers.
Step 6
Organizations can lose control over outsourced work - therefore, mistakes can be very clear or mistakes can arise
Answer
One potential downside is the loss of direct control over the outsourced functions, which could lead to inconsistent quality or failure to meet contractual obligations. This control issue can create challenges in maintaining standards and ensuring that the work meets the company's expectations.
Step 7
Loss of confidentiality - which may mean the organisation has data protection issues to consider
Answer
Outsourcing can expose sensitive business information to third parties, which raises concerns about data security and confidentiality. Organizations must be vigilant about compliance with data protection regulations, ensuring that outsourced companies handle confidential information appropriately.