The Three Important Benefits That IBM Will Receive From Outsourcing Essay

The lead Important Benefits That IBM Will Receive From Outsourcing Their HR Functions To faithfulness - Essay ExampleThis is called outsourcing. Many large companies presently outsource jobs such as call center services, e-mail services, and payroll. These jobs are handled by separate companies that de end pointine in each of the services by means of contracts. Today more and more companies are resorting to outsourcing. This is attributed in the main to the increased efficiency and cost cuts. Earlier small companies and companies which were newly established would resort to outsourcing, but now even giants like IBM are making use of it.In July 2002, a deal was negotiated between planetary Business Machines Corp. and Fidelitys Employer Service Co. According to the deal, Fidelitys Employer Services Co. unit was to take over key benignant- imagerys functions for 260,000 IBM employees and retirees. Fidelity was to enlist 450 of IBMs 1,200 U.S. human-resources employees. Among the jobs Fidelity would handle for IBM were health-plan administration, career services and pension administration. IBM would continue to provide other functions in house, including payroll (Johannes L. and Armstrong D. 2002).According to the article The benefits of outsourcing for small businesses (n. d), Though reducing expenditure is not the prime reason for outsourcing, it is for certain a major factor. Outsourcing converts fixed costs into variable costs and releases capital for investment elsewhere in the business. Outsourcing makes the firm more attractive to investors, since of the ability to pump more capital directly into receipts-producing activities. Though true(p) for small companies, it applies equally well for giants like IBM. In the case of IBM this is exemplified by the fact that the human resource functions of 260,000 workers and retirees have been taken over by Fidelity which has specialization in the field. If the former were to do the homogeneous job, it would c ertainly prove more costly than that of the latter. The funds saved, if invested elsewhere in the company would improve revenues. likewise this would make IBM more attractive to investors, as the saved capital can be invested in the revenue generating areas and nerve centre fields.Increase in efficiency As IBM is a research oriented company specializing in manufacturing computers, it has a high research and development expenditure. Fidelitys cost structure and economy of scale can give-up the ghost IBM Corp an important and strategic advantage. This would help in decreasing the labor costs. The success of IBM depends upon short term projects that it undertakes. Hiring and training workers for short-term projects can be very expensive and short term employees dont always merry up to the desired expectations (The benefits of outsourcing for small businesses). IBMs deal with fidelity will play a leading exercise in improving overall efficiency by decreasing labor costs. About 450 workers in IBM Corp.s capital of North Carolina employee service center will transfer to Fidelity Investments beginning Aug. 1, as part of an agreement that allows Boston-based Fidelity to administer IBMs pension plan, the 12th largest in the United States (450 IBM employees to transfer to Fidelity. July 2002). The transfer of 450 out of 1200 members in the human resource division would certainly decrease the labor costs by more than one terzetto in that particular division. Also as the number of employees is decreased, it increases the scope for other employees to make their jobs secure. More trade protection means more productivity which in turn means more efficiency.Focus on core businesses.IBM, too, like any other company has