Management Notes

Reference Notes for Management

Advantages of outsourcing do not include:

Advantages of outsourcing do not include:


A. cost savings.
B. gaining outside expertise.
C. maintaining a focus on core competencies.
D. accessing outside technology.
E. potential creation of future competition.

The Correct Answer Is:

  • E. potential creation of future competition.

The correct answer is (E) potential creation of future competition. While outsourcing offers several advantages, such as cost savings, gaining outside expertise, maintaining a focus on core competencies, and accessing outside technology, it does not typically lead to the creation of future competition.

Let’s delve into why this answer is correct and then explore why the other options are advantages of outsourcing.

E. Potential creation of future competition:

When a company outsources certain functions or tasks to another organization, it may inadvertently empower that outsourcing partner to develop similar capabilities and potentially become a competitor in the future. This scenario is generally seen as a disadvantage rather than an advantage of outsourcing.

In some cases, outsourcing partners may gain knowledge and expertise by working closely with the client, eventually using that knowledge to compete in the same market. Therefore, the potential creation of future competition is not an advantage but a potential risk associated with outsourcing.

Now, let’s examine why the other options represent advantages of outsourcing:

A. Cost savings:

One of the primary advantages of outsourcing is cost savings. By outsourcing non-core functions or tasks to specialized service providers, companies can often reduce operational costs.

This cost reduction can result from factors such as lower labor costs in offshore locations, economies of scale offered by outsourcing vendors, and the elimination of the need for in-house infrastructure and resources. Cost savings are a compelling reason for many companies to consider outsourcing.

B. Gaining outside expertise:

Outsourcing allows organizations to tap into the specialized knowledge and expertise of external service providers. These providers often have a deep understanding of their respective domains and can bring fresh perspectives and best practices to the client organization.

This infusion of external expertise can lead to improved efficiency, innovation, and the ability to address complex challenges that the client may not have the skills to handle in-house.

C. Maintaining a focus on core competencies:

Outsourcing enables companies to offload non-core or secondary functions to external partners, allowing the client organization to concentrate on its core competencies and strategic activities. This focus on core competencies can enhance the organization’s competitive advantage, as it can direct more resources and attention to areas that are critical for its success.

D. Accessing outside technology:

Outsourcing can provide access to external technology, tools, and resources that the client may not possess in-house. This technology transfer can be particularly advantageous when it allows the client to stay competitive and up-to-date with the latest advancements without investing heavily in research and development.

It can also reduce the time-to-market for new products or services, giving the company a competitive edge.

In summary, outsourcing offers several advantages, including cost savings, access to outside expertise, the ability to focus on core competencies, and access to external technology.

However, it is important for companies to be mindful of potential risks, such as the creation of future competition when outsourcing. While this risk exists, it is not typically considered an advantage, but rather a factor that organizations must carefully consider and manage when making outsourcing decisions.

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