BUSINESS

RESEARCH
PROJECT

ASSIGNMENT # 1
Advantages and Disadvantages of outsourcing of business function and economy of
developed countries

SUBMITTED TO

“Stephen Akpa”

MASTER IN PROFESSIONAL ACCOUNTING

SYED AHSAN ZAIDI ASSIGNMENT 1 STM2057

Contents

Introduction ................................................................................................................................ 2

Project Objective ...................................................................................................................... 4

Project scope ............................................................................................................................. 5

Literature review ........................................................................................................................ 6

Conclusion ............................................................................................................................... 13

References ................................................................................................................................ 14

Advantages and Disadvantages of outsourcing of business function and economy of

developed countries

SYED AHSAN ZAIDI ASSIGNMENT 1 STM2057

Introduction

It is to be introduced that this report consists of the advantage and disadvantage of the
outsourcing of the business function of Optus. Optus Pty Ltd is the second largest telecom
company which was founded in 1981. It is possessed by the secondary of the SingTel since
2001. This report is the combination of the project objective, scope, and the literature which
strictly focused on the merits and demerits of the Optus. The outsourcing is obtaining
services from the outside supplier of the same firm. The Optus Pty Ltd is the second largest
Australian company which is dedicated towards the wireless telecommunication network.
The Optus use the whole sale services of the Telstra and the national broadband network. The
headquarter of the Optus is in Sydney which also covers the outskirts of that place. The Optus
Company also uses the outsourcing in increasing their business functions.

SYED AHSAN ZAIDI ASSIGNMENT 1 STM2057

Project Objective

The main objective of this project is to gain the idea of outsourcing in business and also to
identify the merits and demerits of the outsourcing. Optus is the second largest telecom
company in Australia which serve their customers with different telecom facilities. The aim
of this project is to collect the information from the primary and secondary source of the
company which is to be related to the outsourcing. The target is to understand the positive
and the negative impact of the outsourcing in the Optus. The use of the outsourcing can
provide an outcome as a product to the company.

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Project scope

The scope of the project is that how the outsourcing is used by every company in Australia.
The key success factor of the outsourcing is the third party which is responsible for providing
different services to the company who is using the outsourcing services. It will help in the
contribution in the growth and development as well as for the economic happiness of the
organization. The outsourcing is also responsible for creating job opportunities for the local
community.

SYED AHSAN ZAIDI ASSIGNMENT 1 STM2057

Literature review

According to the lookouts of Andone & Pavaloaia (2010), the outsourcing has become a
major movement in the business function over the past decades. In simple words, the
outsourcing is a service in which the company uses the ideas and workers of the other same
firm. This will be helpful in saving a huge amount of money. Other authors say that the
outsourcing is a process of selling of the product assets or the activities to the third party. The
outsourcing leads to the adding creation in the existed product or service. The outsourcing is
done by the third party who is responsible for providing the resource management to the
organization (Andone & Pavaloaia, 2010).

(Source: Optus, 2017)

According to Bharadwaj, et. al., (2010), the basic types of outsourcing is discussed in the
business function of Optus is:

BPO- In business process outsourcing, it will either work for the back office or for the front
office. The function of the front office is the customer concerned with work like answer the
calls, marketing etc. The back office is consisting of the internal work of the organization like
billing and the accounting process. In the category of BPO the business consultancy, data
entry, hand writing, web designing and other function are involved (Bharadwaj, et. al., 2010).

KPO- According to Whitaker, et. al., 2010, the KPO is the knowledge process outsourcing
which is a form of outsourcing in which the knowledge related work is carried by the workers
of the organization. The KPO is the subgroup of BPO (Whitaker, et. al., 2010) The services
of the KPO is generally included the research and development of the organization. In the
BPO the work of the staff is to look over the functions of the organization. The KPO does not
give cost benefit to their parent company but helps them in giving value addition. The basic
education of the staff is enough to be a part of the BPO but in the KPO they required capable
in the particular field. If an employee is a jack of all trades than the BPO is the right place for

SYED AHSAN ZAIDI ASSIGNMENT 1 STM2057

them rather than the KPO. The training which is provided by the KPO is more severe and
sector specific. The KPO is far better than the BPO but their role is same as they provide the
business function to make their product cost effective (Blind, et. al., 2010).

SYED AHSAN ZAIDI ASSIGNMENT 1 STM2057

The types of outsourcing in contract with the outsourcing company are given:

Professional service- In the professional services the legal; accounting and other information
technology are indulged. These services offer possibly improved in the cost savings of the
organization. The ultimate result of the professional service is to reduce the company’s cost
of the product and services (Contractor, et. al., 2010).

Manufacturing service- The manufacturing service is industry specific in nature. The

biggest advantage of the manufacturing service is that it helps in the cost saving as well as
decrease the assembling line. Some of the quality concerns can be faced in the product time
(Falch and Henten, 2010).

Process-specific service- In the process, specific service the outsourcing is related to the
internal process. The service area is contracted with the other organization that will be
responsible to do their work (Manuel, 2014).

Operational service- Generally this type of outsourcing is done in the manufacturing

company because they required lots of equipment’s and repairing for the product and service
which will be outsourced by another organization (Kharroubi, 2014).

Advantages of outsourcing of business function

According to the viewpoint of Jakopin and Klein (2012), there are multiple numbers of
advantages are easily recognized in the outsourcing like reducing cost, flexibility and much
more. The Optus is the second largest leading company of Australia which is scheduling for
the development of their organization. The outsourcing is largely used by the telecom
company of Australia. The worker of the other firm can be more talented than the workers of
the Optus. Then it’s better to give the work to them rather than buying the raw material and
also manufacture the product and services. The management is familiar with the benefits of
the subcontracting. It will be cost saving to the Optus Pty Ltd so that they will use the rest of
money in their other project. (Jakopin & Klein, 2012).

The advantages of outsourcing are given below:

Cost saving- According to Kroes and Ghosh (2010), In case of Optus, the outsourcing will
help in decreasing the cost. The company uses the outsourcing of the product and service
from the other same firm which will be cost effective to the Optus (Kroes and Ghosh, 2010).

SYED AHSAN ZAIDI ASSIGNMENT 1 STM2057

But according to Kuruvilla and Ranganathan (2010), It will be better to give the work to the
outsourcing services rather than buying the raw materials and manufacture the product. This
will cost high to the organization (Kroes and Ghosh, 2010).

Flexibility in management- According to Rose (2011), In the Optus, the flexibility helps in
increasing the efficiency in the work. The outsourcing will provide resources for a fixed
period of time for increasing the flexibility in the work (Rose, 2011). In the view point of the
Lacity, et. al., (2010), The flexibility in the time period will help the worker to complete their
work before the deadline(Lacity, et. al., 2010).

Reduced overheads- The outsourcing will help in reducing the overheads of the work. If the
back office functions are enormously high then the outsourcing will be responsible to reduce
the need for the office space as the data entry. The data entry can only be done by a single
worker then there will not be any use of more than one staff for the data entry (Kuruvilla and
Ranganathan, 2010).

Developing internal staffs- The outsourcing will help in developing the internal staffs. The
outsourcing will help in reducing the work time of the staffs as this will help in the increasing
the staffs. This will also help in the development of ideas of the staffs.

Operational control- The operation of the organization is costly and also running out of
control. The outsourcing agreement will help in reducing the load of the manufacturing of the
product and services in the organization (Lacity, et. al., 2010).

(Source: Spi CRM, 2016)

SYED AHSAN ZAIDI ASSIGNMENT 1 STM2057

Disadvantages of outsourcing of business function

In the view point of Leimeister (2010), the outsourcing of the business function has a
disadvantage which will be responsible for reducing the loyalty of the customer. If the third
party in the outsourcing service is not working for the development of the organization then it
will affect the different factors of the organization. If the third party will be fake or either ran
away before completing the work then the organization will not trust on any of the other
outsourcing services. The lack of the managerial control, fear of security and confidentiality
can be a huge issue to the organization (Leimeister, 2010). The main issue in the outsourcing
service is the confidentiality of the data of the organization. If the third party is not trusted
worthy then the organization will not have to share their informational data to the outsourcing
service. The hidden cost of the contract can also give a negative impact of the outsourcing
services. If an organization is giving its data to the outsourcing then it will be the duty of the
management to keep the confidentiality of the work (Mani, et. al., 2010).

The disadvantages of outsourcing are as follows:

Loss of managerial control- In the case of Optus, if they sign a contract with the other
outsourcing services for completing the work. The management is giving their overall work
load of the department to the outsourcing service. The outsourcing company will not have the
same mission and vision as according to Optus. This will reduce the managerial control
because the outsourcing services have to make a profit from the service rather than managing
the management (Liu, et. al., 2011).

Hidden cost- While signing the contract with the outsourcing services, some of the contexts
are not covered in the contract. The hiding of cost can affect the balanced budget of the
organization. The organization will also face the legal and additional fee while signing the
contract for outsourcing of the work. The contract is basically written by the service provider.
If the organization is happy with the contract and the additional fee then there will be a huge
disadvantage if the concession is done by the organization (Sukpanich and Rugman, 2010).

The threat to security and confidentiality- The Optus is the second largest
telecommunication company the for sure the management will have some private
information. If the organization is using the outsourcing services then there will be a chance
of losing of the important documents. In the contract with the outsourcing services, there will
be the promise of protection of data. If the data will be leaked then the organization can take

SYED AHSAN ZAIDI ASSIGNMENT 1 STM2057

legal action on the outsourcing services. For increasing the security the organization should
only share the formulas and planning of the product and services (Mani, et. al., 2010).

Quality problems- The quality problem will only rise due to less budget provided by the
organization. The price of the product and service are already declared in the contract. The
rapid changes can only be done by increasing the budget for the product. This will be a huge
disadvantage for the Optus.

Unprincipled behavior- If the behavior of the seller towards the client is not good then this
will affect the rate of service given by the organization to the outsourcing services. This will
create a negative of the individual from the outsourcing services. The behavior of the person
is important to handle the customers. If they are not impressed by the quality of service of the
outsourcing services then they can go over the contract (Nadkarni, et. al., 2010).

The company uses the outsourcing services to achieve their business functions. The business
has to be a focus on increasing the profit from the customers. The factors which motivate an
organization for the outsourcing services are as follows:

The competitive advantage factor- The outsourcing sales person should be able to
maximize the resources for benefiting the outsourcing company. It is important for the
outsourcing company is to increase the competitive factor.

Quality and timeliness- The quality and timeliness are related to the cost savings. If the
outsourcing services sales person will not be able to provide workers with quality will give a
negative impact of the outsourcing services.

Technology and human resource behavior- The technology helps the outsourcing in
increasing its work because the updated software helps in decreasing the work load and it will
be cost effective (Oregan, et. al., 2011).

The reasons for the growing outsourcing for a business function are as follows:

 The global telecommunication helps in the growth of the outsourcing. With the help
of the new technology, the outsourcing can easily gain the information related to
people, product, and services easily.
 The government policies and laws are supportive to the business function and also
help in increasing the resources management.

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  The globalization and the knowledge of economy lead towards the progress of the
outsourcing services (Thota and Munir, 2011).

The off shore outsourcing services are obtained by the people who are outside of the
organization from a different country. The on shore outsourcing services are also obtained
by the outside people but from the same country. In off shore outsourcing, the language
and the culture of the organization are totally changed. The off shore outsourcing
provides high-cost saving and also highly skilled labor who will be able to access the
services. In the on shore outsourcing, there will be no any language and culture barriers.
The main issue in the on shore outsourcing is that the cost of the operation performed by
the labor required a large amount. The near shore outsourcing offers cost saving over the
on shore outsourcing and has more benefit than the on shore.

SYED AHSAN ZAIDI ASSIGNMENT 1 STM2057

Conclusion

From the overall discussion, it is to conclude that the outsourcing is very useful for the Optus
in their growth and development of every department. The outsourcing has an advantage as
well as disadvantage which can affect the outsourcing of business function. The business
function outsourcing is helpful for some of the organization but some of the organization can
be affected by this service. The Optus is also facing different issues like cost effective and the
threat of the security. The outsourcing has positive as well as negative impact on the business
function. The creation of adding values to the different services help in the growth of the
organization. The outsourcing service is responsible to provide the work as written in the
contract. If they will not do so then the organization is able to take action on the outsourcing
services. The outsourcing in an organization is generally motivated by the cost, planning for
the work. The mission and vision of the organization can affect the outsourcing decision.

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References

1. Andone, I.I. and Pavaloaia, V.D.W., 2010. Outsourcing the business

services. Informatica Economica, vol.14(1), p.163.
2. Bharadwaj, S.S., Saxena, K.B.C. and Halemane, M.D., 2010. Building a successful
relationship in business process outsourcing: an exploratory study. European Journal
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3. Blind, K., Gauch, S. and Hawkins, R., 2010. How stakeholders view the impacts of
international ICT standards. Telecommunications Policy, vol. 34(3), pp.162-174.
4. Contractor, F.J., Kumar, V., Kundu, S.K. and Pedersen, T. eds., 2010. Global
outsourcing and offshoring: an integrated approach to theory and corporate strategy.
Cambridge University Press.
5. Falch, M. and Henten, A., 2010. Public private partnerships as a tool for stimulating
investments in broadband. Telecommunications Policy, vol.34(9), pp.496-504.
6. Manuel, C., 2014. Outsourcing within a supply chain management framework.
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7. Kroes, J.R. and Ghosh, S., 2010. Outsourcing congruence with competitive priorities:
Impact on supply chain and firm performance. Journal of operations
management, vol.28(2), pp.124-143.
8. Kuruvilla, S. and Ranganathan, A., 2010. Globalisation and outsourcing: confronting
new human resource challenges in India's business process outsourcing
industry. Industrial Relations Journal, vol.41(2), pp.136-153.
9. Lacity, M.C., Khan, S., Yan, A. and Willcocks, L.P., 2010. A review of the IT
outsourcing empirical literature and future research directions. Journal of Information
technology, vol.25(4), pp.395-433.
10. Leimeister, S., 2010. Introduction. In IT Outsourcing Governance, pp. 1-7.
11. Liu, R., Feils, D.J. and Scholnick, B., 2011. Why are different services outsourced to
different countries?. Journal of International Business Studies, vol.42(4), pp.558-571.
12. Mani, D., Barua, A. and Whinston, A., 2010. An empirical analysis of the impact of
information capabilities design on business process outsourcing performance. Mis
Quarterly, pp.39-62.
13. Nadkarni, S. and Herrmann, P.O.L., 2010. CEO personality, strategic flexibility, and
firm performance: The case of the Indian business process outsourcing
industry. Academy of Management Journal, vol.53(5), pp.1050-1073.

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 14. Oregan, T., Goldsmith, B. and Ward, S., 2011. Sydney's media cluster: Continuity and
change in film and television. In Media clusters: Spatial agglomeration and content
capabilities, pp. 199-222.
15. Rose, M., 2011. Can Project Alliance Contracts deliver Australia’s National
Broadband Network?. Construction Economics and Building, vol. 11(3), pp.68-81.
16. Sukpanich, N. and Rugman, A.M., 2010. Multinationals and the international
competitiveness of ASEAN firms. Competitiveness of the ASEAN Countries:
Corporate and Regulatory Drivers, pp.53-81.
17. Thota, H. and Munir, Z., 2011. Key concepts in innovation. Palgrave Macmillan.

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