This paper examines the strategic case for outsourcing back-office and non-essential operations at Thomson Reuters, a multinational information services company. The analysis begins by contextualizing outsourcing within competitive global markets, then defines outsourcing and explores both risks and benefits. The paper identifies Thomson Reuters' core competency in information delivery and proposes using business process mapping to identify outsourceable functions. Key considerations include security risks, intellectual property protection, and the importance of strategic partnerships. The research suggests that selective outsourcing of non-value-adding operations could enhance organizational focus on core competencies while maintaining competitive advantage.
The international business environment has evolved to become increasingly complex and highly competitive. As a result, many organizations have been forced to streamline operations and seek new sources of innovation in efficiency. Many organizations have turned to outsourcing to reduce costs in non-essential operations and processes. Thomson Reuters is no stranger to this trend. In 2008, the organization announced that it would eliminate fifteen hundred employees across all of its divisions globally, with about half of these cuts targeted at European positions (The Economic Times, 2008).
In this environment, redesigning operations and processes to take advantage of outsourced labor in non-essential business functions can allow an organization to secure resources and maintain its most critical functions aligned with organizational strategy. Outsourcing can create a wide range of objections and debate among academics and investors (Benson et al., 2010). For example, one disadvantage to outsourcing internationally in developing markets is that these countries often lack the judicial system to protect property rights (Goldberg, 2009). By outsourcing processes, organizations can make themselves vulnerable to risks and intellectual property loss.
However, outsourcing also presents significant opportunities. When designed strategically, outsourcing partnerships can enable organizations to focus on core competencies while maintaining competitive advantage. The key challenge lies in identifying which operations are truly non-essential and how to structure these partnerships effectively.
Outsourcing can be defined as "purchasing ongoing services from an outside company that a company currently provides, or most organizations normally provide, for themselves" (Godhar & Deshpande, 2009). These activities may range from manufactured parts to services such as payroll, human resources, and accounting, among many others.
Outsourcing of processes and activities that do not directly add value to the goods or services that a company produces can allow it to focus its internal resources on value-creating processes and improve its overall value proposition, making it more competitive. More and more companies have realized that information technology (IT) outsourcing, once viewed solely as a cost reduction tool, could facilitate and even enable the transformation of core business processes and has dramatically extended the scope of interorganizational collaboration (Li, 2014).
Through collaboration, organizations can focus solely on their core competencies, which has been shown to actually improve these competencies in some organizations. Therefore, outsourcing can offer significantly more benefits than cost savings alone. By creating strategic and enduring outsourcing partnerships, an organization can create value from multiple organizational perspectives.
The critical question is exactly which operations are suited to outsourcing and how best to establish these partnerships. Thomson Reuters' mission is to be the world's leading source of intelligent information for businesses and professionals, with annual revenues exceeding twelve billion dollars (Thomson Reuters, N.d.). The organization has focused on information and different methods of information delivery as its core competency.
One example of the company's innovation in delivering information is the Eikon Desktop analytics software package. From the intuitive Eikon desktop, professionals can click on a stock or commodity symbol and immediately see a corresponding social media feed, including up-to-the-minute analysis of prevailing market sentiment (Thomson Reuters, 2014). Users can also follow relevant news stories and gauge sentiment across channels. This innovation places relevant information in front of individuals through new and creative mediums.
However, identifying and defining which operations are non-essential to this process and outsourcing these to strategic partners remains a significant challenge. Thomson Reuters experiences competitive pressures from both direct competitors in the information services industry and from substitute services that can serve similar functions. The organization must streamline its operations to ensure focus on the niches that add value to its customers. Identifying non-essential operations and creating a strategy to outsource them could be vital to the organization's long-term sustainability.
To determine which processes and operations could potentially be outsourced, an analysis of the organizational structure must first be conducted. Business process mapping is one tool that can allow these processes to be explored and analyzed. The organization can use a process map to determine which processes are value-creating and which are non-essential functions that might be outsourced to a strategic partner.
This methodological approach requires the organization to examine its entire operational footprint and categorize activities according to their strategic contribution. Non-essential operations—such as certain back-office administrative functions—become candidates for outsourcing, while information delivery, analytics platform development, and customer-facing services remain internal to protect competitive advantage.
"Security, intellectual property, and legal frameworks require careful strategic planning"
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