Outsourcing must be undertaken with caution

22 Nov

As already mentioned by 112223751nc, outsourcing is a current trend in information systems that I agree is set to continue.

However I do believe outsourcing must be undertaken with a certain degree of caution as if not it can completely destroy an organisations reputation and competitive advantage.

Outsourcing has both advantages, that 112223751nc discussed  and disadvantages which I have outlined below.

  • Hidden Costs: You will sign a contract with the outsourcing company that will cover the details of the service that they will be providing. Any thing not covered in the contract will be the basis for you to pay additional charges. Additionally, you will experience legal fees to retain a lawyer to review the contacts you will sign. Remember, this is the outsourcing company’s business. They have done this before and they are the ones that write the contract. Therefore, you will be at a disadvantage when negotiations start.
  • Threat to Security/Confidentiality: The life-blood of any business is the information that keeps it running. If you have payroll, medical records or any other confidential information that will be transmitted to the outsourcing company, there is a risk that the confidentiality may be compromised. If the outsourced function involves sharing proprietary company data or knowledge (e.g. product drawings, formulas, etc.), this must be taken into account. Evaluate the outsourcing company carefully to make sure your data is protected and the contract has a penalty clause if an incident occurs.
  • Quality Problems: The outsourcing company will be motivated by profit. Since the contract will fix the price, the only way for them to increase profit will be to decrease expenses. As long as they meet the conditions of the contract, you will pay. In addition, you will lose the ability to rapidly respond to changes in the business environment. The contract will be very specific and you will pay extra for changes.
  • Bad Publicity and Ill-Will: The word “outsourcing” brings to mind different things to different people. If you live in a community that has an outsourcing company and they employ your friends and neighbours  outsourcing is good. If your friends and neighbours lost their jobs because they were shipped across the state, across the country or across the world, outsourcing will bring bad publicity. If you outsource part of your operations, morale may suffer in the remaining work force.

 

http://operationstech.about.com/od/outsourcing/

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4 Responses to “Outsourcing must be undertaken with caution”

  1. billynomates2012 November 22, 2012 at 2:49 pm #

    Strategic or smart outsourcing should be adopted when deciding on which IT services should be outsourced. Management should be well informed in IT so they can make the correct decision when outsourcing and retain their core IT service. There is an interesting article.by earl 1996 which discusses 11 risks of outsourcing which is well worth a read

  2. aplusk22 November 25, 2012 at 6:46 pm #

    Today, it seems the decision to outsource is more complicated and risky than say, a decade ago. In many cases, the companies’ outsourcers could also be outsourcing. These complicated outsourcing supply chains involving third, fourth, and fifth parties may increase the likelihood of something going wrong and make it harder to resolve problems. It’s important for companies to strategically evaluate their decision to outsource or not.

    • ronanisbp November 26, 2012 at 9:01 am #

      Completely agree. Organisations really need to evaluate outsourcing decisions and must have their legal team draw up contracts on the boundaries of the outsourcing activity with the stratecig partner.

      • timh88 November 26, 2012 at 3:45 pm #

        We all saw the shortcomings of IT outsourcing with the Ulsterbank disaster over the summer. Outsourcing could end up costing an organisation a lot more in the long run if errors are made.

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