Question 55

Loss of control, loss of innovation, and loss of organizational trust

Outsourcing can lead to a loss of control over processes, which can impact the quality and timeliness of service delivery. Additionally, it may hinder innovation as external partners may not fully understand the company’s culture or objectives, and it can erode organizational trust if stakeholders feel disconnected from the outsourced functions.

A) Loss of innovation, loss of tax protection, and higher than expected transactions cost

This option correctly identifies the loss of innovation but incorrectly includes loss of tax protection, which is not a primary risk associated with outsourcing. Higher than expected transaction costs can occur but are less critical than the overarching concerns of control and trust.

B) Loss of property, loss of organizational trust, and higher than expected transactions cost

While this option mentions loss of organizational trust, it incorrectly emphasizes loss of property, which is not a typical risk of outsourcing. Higher than expected transaction costs are also less significant compared to the main risks of control and innovation loss.

C) Loss of control, loss of innovation, and loss of organizational trust

This option accurately captures the main risks of outsourcing, highlighting how these factors can significantly affect company performance and stakeholder relationships. Loss of control is crucial as it directly impacts service quality, while loss of innovation and trust are equally important as they relate to a company's competitive edge and internal cohesion.

D) Loss of control, loss of property, and loss of tax protection

This option correctly identifies loss of control but incorrectly includes loss of property and loss of tax protection, which are not typically considered direct risks of outsourcing. The absence of innovation and organizational trust in this option makes it less comprehensive than option C.

Conclusion

Option C is the most comprehensive answer as it encapsulates the critical risks of outsourcing, namely loss of control, loss of innovation, and loss of organizational trust. Each of these risks can significantly impact a company's ability to operate effectively and maintain competitive advantages, while the other options either misidentify risks or lack completeness in addressing the key issues associated with outsourcing.