Outsourcing in the Hospitality Sector – Issues & Perspectives Module code: TH60041G Tutor: Hilary Allen Student number: 21122719 Outsourcing in the Hospitality Sector – Issues & Perspectives. Nowadays, while companies are faced with increasing opportunity to outsource activities they need to make the right outsourcing decision. Although, there are many advantages for outsourcing, there are also risks and disadvantage in this practice.

This essay will explain the term outsourcing and explain why organisations prefer to outsource some of its functions in today’s environment. This essay will try to analysis the advantage and disadvantage of the outsourcing process and its risks concerning the organisation in a first part, then an analyse will be made concerning the challenges to make the most desirable outsourcing contract and there solution will be highlight. In a final part this essay will discuss about the future of outsourcing industry.

The word outsourcing could be explain as the contractual association with a specialised outside service provider for work usually done in-house. Outsourcing could also be defined as the utilisation of external agents to achieve one or more organisational activities (Jacques, V, 2006). According to Bromage, (2000), ‘Outsourcing is one of the most important management ideas and practices of the past

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75 years’. In the hospitality industry most companies decide to outsource for many reasons, such as strategic reasons, which are improve business focus, gain access o World-class capabilities, accelerate reengineering benefits, share risks. The other reason are tactical reasons such as, reduce or control operating costs, make capital funds available, generate a cash infusion outsourcing can involve the transfer of assets from the customer to the provider, and secure resources not available internally, companies outsource because they do not have access to the required resources within the organisation (Quoquam Technologies, 2002).

For all this reasons companies prefer to outsource some part of their business, the services which are typically outsourced by chain hotel are, Administration, Accommodation with housekeeping and laundry, Food & Beverage, Maintenance & External, (SurroundingsLamminmaki, D. 2005). Outsourcing represents many advantages but also disadvantages and to recognize them it is important to understand how the industry of outsourcing is structured to meet the needs of client firms, (Goldsmith, 2003 cited in Schniederjans, 2005).

Many companies in hospitality industry outsource their business to make cost saving or better cost control over the outsourced function because for example an Hotel restaurant which outsource their laundry will see better the amount spend rather than if they had to count the price of washing powder used, the wear of the washing machine, etc. Cost reduction has been the predominant motive for outsourcing, Another advantage for outsourcing is to realize staff reductions or minimize the instability in staffing, because with utsourcing companies need less employees its result directly on them turnover . Companies also outsource in order to decrease the workload on their employees. Some companies outsource in order to eradicate disturbance and oblige themselves to focus on their core competencies. This can be particularly attractive benefits for companies. Companies outsource also to realize better flexibility, since the sale of assets that formerly supported an outsourced function can improve companies cash flow. Many suppliers demand long-term contracts, which may minimise flexibility, (Grauman, K, 2000).

The potential for improved flexibility may apply not only to the volume of output but also the ability of the organisation to change the product range in response to market condition, (Jennings, D. 2002). As with any process, there is a negative side and outsourcing presents some disadvantages and some risks, such as the loss of control of their company. Moreover they also need to adapt them to the employees of the outsourcing company, actually they don’t have the control of those staff, (Jennings, D. 2002).

Outsourcing cause also a problem in the reversibility of the process because when the process has handed over to an outsider, it will be extremely difficult and costly to bring it back in-house. A risk of discordance between the two different staff can be envisaged because it can damage the moral of existing workers. The human aspect of outsourcing often is overlooked, (Embleton, P. 1998). One of the biggest problem of outsourcing is the contract according to Wirth, G. M (2001) ‘Many outsourcing contract do not define precisely the types, quality and quantity of services to be delivered.

The contract should provide for a means to measure whether the benefits the company seeks to obtain are, in fact achieved. ’ The initial contract can be very competitive, however, the inevitable changes may cost significantly more, (Embleton, P. 1998). A problem of quality can be highlight some outsider in order to save more and more money the quality can be neglected and as its have said before, because of the outsourcing contract sometimes the company may have problems to remedy this, (Embleton, P. 998). The challenges for companies its to identify the keys to a successful outsourcing contract. Platz, A and Temponi, C. (2007) identify four keys to achieve a successful partnership between the company and its outsourcer. The contract is the most important thing in outsourcing becauce all the rest result of it. Contract governing the outsourcing relationship can be the most important hedge against misunderstandings and disappointments, (The journal of Business Strategy, 1997; cited in Wirth, G.

M. 2001). To have a beneficial reciprocity the contract between customer and vendor need to be carefully structured, (Wirth, G. M. 2001). It is impossible after the signature of the contract to formulate any contractual agreements or in retrospect, (Platz, A and Temponi, C. 2007), that is why during the preparation of the outsourcing contract, the company involved must decide on the best form of contract that can ensure performance, value, and return on the prospective investment, (Davis, 2004).

The first Key is, elements for performance, they are essential, it is necessary for the company to make an outsourcing contract which contain a detailed description of all expectation of outsourcer performance since service levels for in-house function are generally used as the benchmark for outsourced functions, (Wirth, G. M. 2001). The best to encourage the performance of outsourcer is to make a contract which permit it, such as for example a percentage of the future company benefits realised with the outsourcing service, that can be encourage performance and discourage underperformance, (Kweku-Muata and Sullivan, 2003).

To increase the performance of the outsourcer the company can implement incentives and reward to maintain the level of quality, (Sadler, 2002). On the other hand if the level of quality is not maintain the company can also implement in the contract penalties against the outsourcing company. Costing and pricing are the part of financial elements of the outsourcing contract, this will be the parts where the company and his outsourcer will have a look attentive, that is why pricing is most effectively established when the customer and vendor companies acknowledge profit as a function of both parties, (Steele and Shannon, 2005).

The key elements concerning human resource are the transfer of staff, well distinguish the function of employees from the outsourcing company need to be taken into consideration, the outsourcing contract must to discern the role of every one. The contract should converse which personnel tasks will keep under control of the customer company, while the method for recruitment, growth in staff or reducing, and personnel infrastructure must be addressed with regard to the outsourcing company, (Siegle, 2000).

The contract must include the training and hiring of vendor company employees, in order to ensure the quality of services and also to deliver the culture of the company, (Wirth, G. M. 2001). The last key to achieve a successful outsourcing contract is identified as the legal elements, such as the transfer of assets and intellectual property right, (Platz, A and Temponi, C. 2007). The partnership between outsourcer and customer can allows to access to new technologies and increase their investment capabilities, that is why the outsourcing contract must to concentrate on all the companies assets accordingly, (Platz, A and Temponi, C. 007). According to Fitzpatrick and DiLullo, (2005) ‘IPs have been identified as compromising approximately 85 percent of the overall economic value of a corporation; IP is the most important asset for the customer and vendor companies’. In order to protect their intellectual property and assets such as, trade secrets, patents, copyright and trademarks the outsourcing contract must to provide an infrastructure for right corporate security, in order to protect their intellectual property exchanges for outsourcer and customer companies, (Fitzpatrick and

DiLullo, 2005). To protect their legal elements, of an eventual infringe upon ownership right, (Brennan, 2003). Customers companies must to insert in the outsourcing contract warranty and liability. The outsourcer will present proper documentation and warranty to the client customer to proof the quality of the product or services, (Brennan, 2003). Outsourcing since few years has become a very strong industry, (Bolat&Yilmaz 2009). But some author as Schniederjans, J and Schniederjans, M,. re thinking that outsourcing industry should know a decline in rapid growth rates. Due to multioutsourcing legislation, more political pressures and realistic view of the outsourcing limits should be highlight in the future. According to Schniederjans, J and Schniederjans, M. (2007) ‘The recognition of risks and the less-than-expected rewards of outsourcing will become more defined and noticeable to potential adopter, reducing the overall demand of outsourcing services, worldwide. More and more companies will be in the obligation to retain a minimum part of their internal processes to be handled by insourcing. To conclude all the research made, show the importance of the outsourcing industry in hospitality with this advantages and inconvenient, the outsourcer bring competitive advantage to the company but the outsourcing decision needs the identification of a large range of contextual factors and the repercussion of their longer term development, (Jennings, D, 2002). In order to make the best partnership profitability the utsourcing contract must to be established with rigor and including all the key success such as, performance, financial elements, human resource, and legal elements. The contract must to reflect the needs of the companies to be clearly identified and directed by the outsourcing companies, (Platz, L,. And Temponi, C. 2007). According to Platz, L,. And Temponi, C. (2007) ‘ The existence of an outsourcing contract is essential but simply developing the contract is not enough to solidify the customer-vendor relationship, although this is the first step. Outsourcing is essential for the success of many companies, but to achieve the success many challenges must to be taken into account and identify, to find solution to the risks of certain challenges thus the relationship between the outsourcer and the customer company will emerge stronger. Bibliography * Armstrong, M. (2006) Human Resource Management Practice. 10th ed. Philadelphia: Kogan Page. * Bratton J. & Gold, J. (2007) Human Resource Management. 4th ed. New-York: Palgrave Macmillan. * Brennan, T. M. 2003), “Purchasing software: what corporate counsel need to know”, Intellectual Property & Technology Law Journal, Vol. 15 No. 8, pp. 6-9. * Bolat, T. & Yilmaz, O. , (2009), « The relationship between outsourcing and organizational performance, Is it myth or reality for the hotel sector?  » Journal: International Journal of Contemporary Hospitality Management Vol. 21 No. 1, 2009 pp. 7-23 (Available online at:) http://ezproxy. tvu. ac. uk:2127/journals. htm? issn=0959-6119&volume=21&issue=1&articleid=1770937&show=html (Accessed on: 07/11/2010) Davis, R. (2004), “Setting up and managing outsourcing contracts to deliver value and accommodate change”, Journal of Corporate Real Estate, Vol. 6 No. 4, pp. 301-7. * Embleton, P,. R. and Wright, P,. C. (1998) A practical guide to successful outsourcing; Empowerment in organization, vol. 6 No. 3, pp. 94-106. * Fitzpatrick, W. M. and DiLullo, S. A. (2005), “Strategic alliances and the management of intellectual properties: the art of the contract”, SAM Advanced Management Journal, Vol. 70 No. 3, pp. 38-45. * Grauman, Kevin. « The Benefits of Outsourcing.  » CPA Journal.

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