Strategic plan outsourcing

Essay by eerie July 2009

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Over the last decade it has become increasingly important for the strategy in the overall firm's operations to include or at least evaluate outsourcing options. Companies in the U.S. pay about $68 billion every year to other companies for outsourced services and although a major part of these contracts succeed, there is an increasing concern due to recent broken deals. A recent study shows that 80% of companies that outsource their customer based functions are failing to meet their cost savings targets. Usually companies fail to budget hidden outsourcing costs such as customer dissatisfaction that can eventually jeopardize the future of the firm. In the information and white papers on outsourcing evaluation matrix includes four main points of value influencing the success of outsourcing strategies: the firm's Comparative Advantage, Employees, Suppliers and Customers.

 Every year in the United States, companies pay about $68 billion to other companies for key services or products that help them focus on their core business and delegate other functions (Thurm, 2007).

The value of IT Outsourcing contracts worldwide was $119 billion in 2004 (Pai, 2007). Without a doubt, outsourcing is a major part of the business strategy that drives organizations to success. Whether at its simplest version of buying raw materials from a large supplier to its most complex variation of offshoring services, outsourcing is present in all business strategies.

However, outsourcing strategies are not always successful; therefore it is crucial to understand the factors that influence a firm's outsourcing strategy. In 2004, J.P Morgan Chase & Co. took its main technology functions to be in-house again abandoning a $5 billion agreement and Electronic Data Systems Inc. backed down from a $1 billion deal (Thurm, 2007). Although a few years ago outsourcing was used by some manages as another mean to cut costs,