Mcdonald\'s Outsourcing: Pros and Cons

McDonald's

Outsourcing: Pros and Cons

According to Scott Bury's article "Outsourcing separates winners and losers" despite the considerable energy most businesses have devoted to studying and implementing process outsourcing, business process outsourcing fails to deliver the anticipated benefits in 50% of the cases where companies attempt to save money and add to their efficiency. So why do so many businesses fail and why does such outsourcing remain a popular business strategy, despite the statistical evidence supporting its merits is scanty at best?

Most businesses in the technology sector view technology as their core competency. But even in technology-driven enterprises, 40% of employees are in administrative positions such as human resources, accounting, legal services, supply chain management, or in logistics and do not actually generate revenue, merely support the organization's functions that generate revenue. Also, many technological companies are relatively young, and the rule of thumb is the younger the company, the more eager and apt it is to instate changes, in hopes of making processes faster and cheaper. There are no entrenched standardized operating procedures to uproot. However, outsourcing cannot be viewed as an automatic profit-generating venture. Many companies view outsourcing as a means of simply centralizing a process that had been performed in multiple locations and do not improve the process. Little net value is added in the long run as a result.

Even relatively older companies, however, such Nike and UPS have been successful in outsourcing, Nike in the case of manufacturing its shoes, and UPS by outsourcing some of its customer service operations. With the advent of computer tracking devices, a customer service representative in Bombay can check a package that was shipped in the United States.

Nike and UPS have seen both advantages and disadvantages of process design outsourcing. For example, outsourcing for UPS has proved beneficial, because outsourcing allows the services of a company to be available 24/7, which is useful for a company where customers may wish to place or check on the status of an order at all hours of the night. It also allows the elements of the company devoted to customer service to focus on that single function, and the technological components of the company to focus on speed of delivery and engineering better package design.

The downside for UPS in outsourcing is that the outsourced customer service may be less familiar with the culture of the typical consumer, may be removed from the processes taking place, and also because the packaging and delivery industry is a service-driven business. Many companies and even the U.S. Postal Service can ship goods, but quality and reliability of service separates competitors. A customer may wish to select the company to use because of a good 'feeling' that the company gives personalized service, and wants to know that the company's customer service goes the extra mile to show an interest in their business as a customer.

As a product-driven business, Nike does not have the same problems as UPS. It also can benefit from being able to produce shoes in greater volume and at cheaper economies of scale, by using cheaper outsourced labor in its factories abroad. Also, the inability of the production line staff to understand American's fascination with Nike's high-end fashion or running sneakers does not affect consumer demand in other nations of the world, because Nike sneakers are still seen as a very special commodity, regardless of who makes them or where they are made -- the appearance of the shoe is not affected by where it is manufactured.