Case Study of Uniliver Company Samples for Students-Myassignment

Question: Discuss about the Advantages and Disadvantages of Outsourcing. Answer: Introduction Unilever is a world class organization, made up of group of companies dealing with production and marketing of different brands. Some of the brands the company produce include Lynx, Persil and Knorr. The companys key strategy is to add vivacity to peoples life through the production of goods that makes them feel better. Unilever has created employment to more than 200,000 people in the world. In 2009, the firms revenue exceeded $ 39 billion. The firm operates in more than 100 countries in the world (Unilever, 2006). One of the Unilever strength has been through outsourcing of experts to complement its business functions. Currently, outsourcing is among the effective activities in the modern business, this is because several companies apply innovations of science, technologies and techniques to offer competitive and qualified product which satisfies the consumer. Outsourcing is very useful since it leads to concentration of resources on the development of prospective and competent direction of activities. It also leads to significant decrease on the production expenses since it ensures that the end product does not apply extra effort nor invest in new activities. This literature paper focuses on outsourcing, its merits and demerits of outsourcing using the Unilever company as a case study. Outsourcing Theoretical Description of Outsourcing In the high paced modern world of business, majority of the firms are striving to distinguish the competitive strategy that is right in their area of operation. In the market, firms are facing a lot of pressure to maximize and improve their operations efficiency. In order to attain a competitive edge in the market, organizations have embarked on outsourcing as their main business element. Outsourcing is the movement of the firms business processes to a third-party, from inside the company (Click Duening, 2005). Management practices are outsourced by the businesses to add expertise that is specialized help management improve and run module of business and the firm at large (Click Duening, 2005). The emergence of information technologies, cost reduction, and the competition are the ultimate reasons that enables the emergence of this approach. Many firms adopt the outsourcing technique to facilitate the dealing of the core-activities by the third parties and focus on strategic aspect of their business (McIvor, 2005). When the firm's secondary-level activities start to act as, hindrance to investment from their core activities, consume time, and consume more of their existing scarce resources, that is when they normally embarked on outsourcing activities. Companies finds outsourcing as means through which they can reduce their risk and load for their secondary-level activities if they intend to focus on their key business activities (Quinn, 2000). Outsourcing is a result of innovation for majority of the companies. Outsourcing is one of the significant aspects that have changed in the recent past and the changes are derived from the rapid changes in the demands of the market, the changes that occur daily in the environment, product life cycles that are shorter, and the emergence of new technologies In the current world, outsourcing has been discussed widely as an issue and has been a topic that is common in the academics literature, with its discussion being viewed in terms of a business strategy. Firms that are most successful in the world use outsourcing. Offshore possibilities are the major highlight of this topic; where substantial markets like China and India compete with the West markets. In some cases, businesses are seeking market opportunities, efficiencies, and cheap labor from the East. In short term and theoretically, outsourcing can result in enormous profits. Unilever Progress in Outsourcing Over the past few years, Unilever company has embarked on numerous agreements of outsourcing with prominent contractors such as HP, Accenture, IBM and BT. The company has outsourced several number of its operations that are non-core business to these vendors. The nature of the agreement is explained as follows: In 2005, there was a seven-year application agreement of outsourcing between Unilever and Accenture. The agreement covered the applications development, implementation, and to provide support to Unilever across the Europe (ComputerWeekly.com, 2008). The contract entailed the delivery of IT services and the deployment of a European unified IT program to Unilever at a cost of 500m. The services were to be provided in 20 European countries. Also in the same year, IBM signed with Unilever an outsourcing of financial transactional services contract. The contract was a seven-year deal aimed at serving Unilever across Europe. Over 740 Unilevers employees were affected in all 20 European countries (ComputerWeekly.com, 2008). The deal involved management of Unilevers Bill to Cash operations, Overall Accounting, and Purchase to Pay. Three years after the signing of the agreement, it was stretched to include outsourcing of procurement. The IBM helped the company to integrate and standardize the practices of procurement to all regions in Latin America. Unilever additionally entered into an agreement with Accenture for HR BPO outsourcing in 2016. The contract involved covering of the aspects such as the administration of payroll, reward, workforce report, management of performance, and core human resource administration. This was to be covered in more than 100 countries and in various languages (Unilever, 2006). The delivery was to be effected through centers in Bucharest, Bangalore, Curitiba, Dalian, Manila, and Prague. Advantages of outsourcing Reduction of Cost of Operation Operational costs reduction is the major goal of outsourcing. Operational costs and essential savings in capital have been noted from organizations outsourcing various operational segments (Harland et al., 2005). In order to cut down the cost organization are required to locate and divide their non-key and key and activities. Once the identification of non-key and key activities, the non-essential activities can be contracted to a third-party outsourcer. The concept of outsourcing is to ensure that the organization has adequate resources, strategic interest and time to accommodate in-house operations (Weigelt 2009). The major reason as to why the external vendor can manufacture the similar commodity at a cost which is cheaper is through the achievement of a greater scale of production. The production of large volumes is kept by taking in from various clients small volumes (KakabadseKakabadse 2005). The production of bigger scale enables the suppliers to specialize in their fields lea ding to high efficiency in plant, therefore, reducing the cost per service or item produced. Globalization is also among the initiating factors that have heavily driven and led to outsourcing implementation that is cost effective (Farrell, 2006). The focus is now moving towards outsourcing jobs that are of low levels to emerging economies where the labor and wages costs are relatively low as compared to developed economies. The low-level jobs theoretical description is based on both prior knowledge and low level of experience (McKinsey Global Institute, 2003). The transfer of these particular jobs has also been witnessed in developed countries after being considered as unattractive Therefore, outsourcing implementation can be viewed as a management practice which brings about fundamental changes by process improvements. This aims at general costs that are low in the organization (Bailey et al. 2002) as well as creation of economic advantage through the pricing strategy over the organizations competitors. However, when an organization is involved in subcontracting activities it reduces costs in one section whereas, the other sections usually require high management attention and increased investment. The involved areas are generally associated with management, supplier and buyer network. Outsourcing demands the acquisition and maintains of high logistic excellence level in the organization. Also, savings gained through outsourcing is evaluated against costs because of the evaluation of the suppliers performance. This ensures that delivery of services, quality and timing remains on high level (Qulin Duhamel, 2003). Although, expertise hiring from the host country has not proven to be cost effective. Flexibility The strategic aim of maintaining a flexibility level which is higher within the firm is one of the motive strategy outsourcing activities' implementation, apart from the aim of reducing cost. It is essential for the firm to acquire higher flexibility levels, in a strategy to handle parameters of uncertainty associated with global market volatility increase (Buckley, 2009). (Verwaal et al. 2009) explained that the intention by the companies to outsource was related positively to uncertainty of the environment. Firms acquire flexibility by engaging in activities of outsourcing by becoming easier to alter the purchasing necessities for service contracted and to alter activities of the in-house (Hendry, 1995). The different perspective of stakeholders such as trade unions and employees need to be considered. In this way outsourcing offers a way to reduce the firm and enable the firm to be more adaptable (Bailey et al. 2002). This enhances vertical and huge static firms to shift to horizo ntal and smaller organized organizations. In this horizontal firms the focus has shifted to improved control and flexibility over the networks of the organizations (Lacity et al. 1995). The firms are able to venture into new openings and opportunities in a shifting and fast market. Expertise and Knowledge Expertise, skills and knowledge are the key competencies of the organization, and they are most likely to row to organizational costs if there is a decrease in outsourcing. In the scenarios where there is a decline in market core competencies, the firm may be forced to seek alternative of outsourcing elsewhere as a way of maintaining short-term competitiveness. This can result in a significant influence on the effectiveness of the firm (Arbaugh, 2003). A good number of the organizations have enormously suffered the effects when trying to outsource, in some cases they might have insufficient knowledge about the market. Hence, market knowledge and strategic capabilities must be integrated and embedded within the organization. Efficiency and Quality Outsourcing with a motive driven by quality is the opposite of the outsourcing with a motive of cost reduction. Maintaining outsourcing and efficiency to attain an improved quality is decision that is strategic, which is problematic to combine with achieving a reduced cost (Varadarajan, 2009). Still outsourcing with the aim of improving service and product quality continues to be a significant motive in outsourcing implementation (KakabadseKakabadse, 2005). Therefore, a firm may decide to pay more to achieve a higher standardized quality and efficiency in its products and services. Although, the outsourcing quality aspect is put forward often when the firm revisits and benchmarks its inside activities against its competitors. Innovation The most key reason why businesses outsource is innovation. This so because they can establish a platform and acquire competence within the organization that may facilitate future innovations. This can enable the firms to improve and develop their goods and services (Verwaal et al. 2009). Also, this can improve reduce the duration at which products stays in the market and business processes. Therefore, the motive of the organization is distinct from competences and the access to novel expertise that targets to attain short-term objective to fill technological gaps, and temporary knowledge in the firm. The Strategic outsourcing is connected to innovation motives, where the main objective is making sure that the firm survive and position itself strategically in the world market in the future (Harland et al. 2005). The motive to establish strategic outsourcing innovations in the future is made possible through the improved expertise levels of the supplier (Bengtsson and Dabhilkar, 2009). Outsourcing of activities has moved to outsourcing of more problem resolving tasks and high level from low level jobs. Hence, providing the organization sourcing with innovative and new solutions. Competitive Edge Innovation is an intention to aspire a world leading position and to gain a competitive advantage and to within their field. In other word, becoming the most preferred choice for the potential customers. (Prahalad and Hamel 1990) put forward an argument to focus on the core business of the firms. They presented important steps toward this direction. However, non-core activities may be chosen to be outsourced when focusing on the core business (Prahalad Hamel 1990). Outsourcing Demerits The following are the key demerits of outsourcing: Low of control in terms of management over outsourced operations, Insecurity risks Lack of confidentiality, Challenges of quality in products and services Extra hidden costs The restructuring of the current employees The disadvantage associated with loss of managerial control stems from the fact that management of external resources needs special skills which are achieved through the combination of the process management and with the skills of people, power negotiation and contract management. Additionally, almost each outsourcing contract has confidentiality and security terms spelled out, although, the audit and the execution are usually difficult (Willcocks et al, 2009). Requirements keep information known to investment bankers away from brokers, traders, and other people who may want to improperly to use the information, in financial services. Also, one aim of outsourcing is based on getting better services from the outsourcer as compared to the internal employees. The outsourcer is selected in a specific way that ensures that there is quality production of goods and services. If not, the firm may lose its market position. Another disadvantage is that when a firm signs a contract with the out sourcing firm, it signs a contract that only covers the services it will be provided (Willcocks et al, 2009). Anything out of the agreed contract will result in additional costs. Additionally, if the firm seeks outsourcing services, its current employees are filled with firing minds. This can demoralize the employees hence resulting in low performance. The management also faces the challenges of allocating the current employees after outsourcing experts. Conclusion In the modern fast moving world of business, many firms are striving to distinguish the competitive strategy that is right in their area of operation. Firms are facing a lot of pressure in the market to maximize and improve their efficiency in operations. Many organizations have embarked on outsourcing as a key aspect in their activities so as to achieve a competitive edge that sustainable in the market. Unilever company has embraced outsourcing positively, at such, the company has entered into several outsourcing agreements with various vendors. Some of the vendors include the IBM, Accenture, and HP. Outsourcing is the movement processes of business to an externalprovider from inside the company Management practices are outsourced by the businesses to add expertise that is specialized help management improve and run module of business and the firm at large. Outsourcing has both advantages and disadvantages to the firm implementing it as a business strategy. Operational costs reduction is a key goal of outsourcing. Operational costs and essential savings in capital have been noted from organizations outsourcing various parts of their operations. In order to cut down the cost organization are required to locate and divide their non-core and core and activities. After the identification of non-core and core activities, the non-essential activities can be outsourced to a third-party vendor / contractor. The idea of outsourcing is to ensure that the organization has adequate resources, strategic interest and time to accommodate in-house operations. However, the disadvantage associated with loss of managerial control stems from the fact that management of external resources needs special skills which are achieved through the combination of the process management and with the skills of people, power negotiation and contract management. Additionally, almost each outsourcing contract has confidentiality and security terms spelled out, although, the audit and the execution are usually difficult. 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