Advantages and disadvantages of outsourcing

Essay by msbonnielaneUniversity, Master's January 2006

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Personnel services, over the past decade, have become a billion dollar business and will almost double by next year. These services are cleverly hidden by classy names like "Recruitment Enhancement" or "Employer Services" companies, but all in all the bottom line is just the same. Outsourcing occurs when a firm subcontracts an outside supplier to manage or maintain certain aspects of their company's business. This has been common practice in the United States for years. Professions most hit by outsourcing include medical transcription, tax preparation, telemarketing and financial services. (Drezner) More recently, other areas of large businesses have begun to be outsourced such as payroll, human resources, IT and other areas that are determined to not be part of the company's primary business.

For IBM, its' convergence with Fidelity's Employer Services Co. marked a "major contract" in which Fidelity presumed key human resource functions for over a quarter of a million employees and retirees.

Unfortunately, under this plan almost two-thirds of IBM's original Human Resources employees lost their jobs. IBM took these steps in transferring their HR work to gain the benefit of having "specialists who may be able to manage it better and at a lower cost." (Armstrong)

Not only does IBM save the payroll cost of the original twelve hundred Human Resource employees, but they also save the cost of the office space they needed to provide for them. This step saves the company money while helping them to better focus on "improving service for the employees." (Armstrong) This is just another benefit of outsourcing.

IBM has been outsourcing several branches of their company over the past years to include consulting and employee help lines. Some of the key functions Fidelity will take over for IBM are their pension and health plan administration and also career...