Term Paper: Organization Change as a Result of Outsourcing and Strategic Alliances

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Organization Change as a result of outsourcing and strategic alliances

Outsourcing and strategic alliances are terms used more and more often. This is due to cost pressures, weak economic conditions and rapid advancements in communication technology (especially the explosion of the Internet), which have completely changed the rules in the business arena by erasing geographic borders.

The two terms refer to strategic actions that seem the perfect solution to the problems organizations are presently facing. However, there is an aspect that has to be properly analyzed - the change impact of outsourcing and strategic alliances. Externalization of certain functions or partnering are not efficient in all cases, and may throw companies off balance if they are not implemented properly.

There are a number of forces that push for change within an organization. These are external and internal. The external forces are determined by the relationship of the organization with its environment and refer to the level of competition of the market, to the legislative frame, to the cultural pressures or constraints. For example, offshore outsourcing meets many external demands due to the change of location, triggering a series of change requirements. Asian countries, that have developed greatly over the past decades, have specific policies, legislation and cultural guidelines that the outsourcing companies have to integrate in their processes and structures. The internal forces refer mostly to the organizational life cycle, and include organizational performance, strategic management characteristics and organizational structure. Performance is the main goal, and it requires measures like cost-cutting and improving efficiency, which impact organizations at both functional and cultural levels.

The culture also plays a major role in organizational change, in relation with outsourcing and strategic alliances. It affects the company totally: all departments and all activities. It also influences, at the same time, the actions of the groups with which the company has contact, their perceptions and decisions. Hence it touches both the internal and external spheres. Organizational cultures perspires through all activities and influences performance by imposing certain values that help the organization to smoothly survive on the fierce competitional business scene.

Outsourcing and strategic alliances do not impact all organizations alike. There are major differences in the amount of change and adaptation required, depending on many factors. Two categories of change can be identified - incremental and transformational. Incremental change is part of the organization's natural evolution in building on the existing ways of operating to enhance or extend them in new directions. It is a smooth process that molds on the existing organization, pushing for change slowly. Transformational change is more radical, resulting in a major overhaul of the organization or its component systems. The organization is constrained to adapt to a large amount of novelty.

To sum up, outsourcing and strategic alliances lead inevitably to organizational change, but the specifics differ from case to case. This trend imposed by the increasing competition on all markets has profound effects in all organizational areas, and for the process to work it takes careful planning. Both internal and external factors have to be considered.

Introduction

Change is a trademark of the present. It manifests itself in all areas, and it is an essential factor in the business environment. As external conditions rapidly change, organizations are forced to adapt internally and to plan ahead according to new coordinates. Globalization changes the basis of competition, determining the occurrence of new trends, such as outsourcing or strategic alliances. Outsourcing has become, over the last decades, a strategic opportunity, especially in terms of costs. Efficiency is the main objective, and cutting costs is the best instrument to achieve it. However, many companies face great difficulties in coping with sudden change. Outsourcing has grown into a complex process that involves all major functions of an organization: R&D, manufacturing, even marketing or evaluation. And this translates into change at different levels of the organization. It also may meet resistance from employees, having to fight inertia and habitude.

Organization Change as a Result of Outsourcing and Strategic Alliances

Outsourcing represents a process of externalizing internal corporate functions, leading to the creation of new industries. Shifting from a vertically integrated company to a specialized provider of a single function is not a winning strategy for everyone (Gottfredson, Puryear and Phillips 2005). Strategic alliances (SAs) are long-term relationships between two or more parties, mutually beneficial and aimed at pursuing common goals while remaining independent organizations. The new formed entities should enjoy the strengths of all parties and benefit from all their resources, growing to be more than the sum of the parts (in theory). Both these strategies (outsourcing and forming alliances) impact organizations, bringing change into their processes and functions. There are a numer of aspects that have to be taken into consideration.

Firstly, the forces that push for change have to be discussed. The organization-environment relationships are the main external forces that push for change in an organization (Schermerhorn, Hunt, and Osborn 2005). The growing complexity of most markets imposed a need for adaptation to the large number of competitors, compared to a relatively constant number of clients. Furthermore, the high level of turbulence of the business environment forced the organizations to anticipate and control unpredictable events through strategic decisions. The high competitivity was also an important force. All these forces have lead to the need for change through outsourcing and SAs. Internal factors that push for change refer to the organizational life cycle, and include organizational performance, strategic management characteristics and organizational structure. The pressure for efficiency calls for measures like cost cutting, downsizing, aggressive marketing tactics or changes in management. The organizational structure makes change easy or difficult.

Culture also plays a major role in organizational change. The organizational culture includes many factors inherent to a company and vital to its functioning, such as: the dominant leadership style, the values, the language and symbols, the practices and habits the standards for success accepted within an organization. One main topic of discussion associated with organizational culture is its linkage with corporate performance. In the present context, companies which value especially key managerial components (such as customers, stakeholders and employees) have better results then the companies who do not put emphasis on them (Berrio 2003). Open cultures cope better with change and multiculturalism due to outsourcing and SAs. Although globalization has erased economical boundaries, it has also emphasized cultural ones, and this is a vital aspect for business development. When the partners of a SA or of an outsourcing process come from different cultures, the impact on the organizations is far greater and so is the resistance to change.

Outsourcing and SAs may produce different types of change within a company. Incremental change (or frame-bending change) is part of the organization's natural evolution in building on the existing ways of operating to enhance or extend them in new directions. It may refer to the introduction of new products, new technologies, and new systems and processes (Schermerhorn, Hunt, and Osborn 2005). The amount of change is not great, thus being easily implemented and accepted. For example, the outsourcing of a single function, like marketing, may be a decision leading to incremental change. This may also be the case of an SA between companies that have relatively common target markets (such as the strategic alliance between Adidas and X-box). Continuous improvement through incremental change is an important asset. Transformational change, on the other hand, refers to a process that affects the entire structure, resulting in a major overhaul of the organization or its component systems. It is described as radical change or frame-breaking change. Organizations experiencing transformational change undergo a significant shift in basic characteristic features (Schermerhorn, Hunt, and Osborn 2005). This is the case of outsourcing more that one corporate function or of offshore outsourcing (manufacturing in Asian countries, for example), causing organizational change… [END OF PREVIEW]

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