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Reasons, Risks and Rewards of IT Outsourcing

Published on 24 June 13
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Reasons, Risks and Rewards of IT Outsourcing - Image 1

Outsourcing means referring services from a customer or client to a third party service provider, which can be either local or foreign. The most common examples of outsourced activities comprise of: distribution and logistics services, IT services, delivery, marketing and sales services, human resources services, customer call center services, procurement services, and accounting services. Business owners need to be aware of the pros and cons of outsourcing, as these may influence the evolution of a company. For this reason, in the following article you are introduced several considerations related to IT outsourcing.

Common risks of offshore outsourcing

The moment services are outsourced to certain offshore providers, clients will face higher risks and costs in contrast with solutions that involve on-shore resources. Likewise, despite offshore outsourcing is more cost-effective, it usually has hidden fees involved, like a pricier and longer process of vendor selection, the offshore partner may need an extended time frame to complete the given task, and various other costs related to redundancies of local workers, that are not going to be relocated internationally, as well as turnover costs, and taxes associated with the addressing language, plus other cultural or communication issues.

Safety and data protection
Even if most IT companies regard offshore vendor security practices as remarkable (usually better that on-shore practices), the overall risks of security breaches or damaged intellectual propriety rights are undoubtedly raised when functioning internationally.
Process discipline

The Capability Maturity Model, or CMM, is an important factor that may determine a companyâs readiness to opt for an offshore model. Also, according to the META Group, nearly 70% of IT organizationsâ clients are only at the CMM Level 1, and offshore vendors generally require a CMM Level 5.

Forfeiture of business knowledge
It is vital for corporations to analyze business knowledge, and decide if opting for an offshore venue will influence in any way the organizationâs capability to continue performing at high levels.
Vendors incapable to deliver
Most IT businesses fail to introduce a contingency plan in case the outsourced work doesnât live up to the expectations of the client. High risks, or exposure might put extra pressure on a corporation, and make it to modify its entire outsourcing strategy.
Submission to governmental regulations

Generally speaking, financial service institutions, utilities, and healthcare organizations, often confront themselves with government oversight. For this reason, it is essential for an offshore vendor to comply with all the requirements specific to the industry and prove his submission.

The fast development of the outsourcing vendors has led to an active and energetic labor market, and usually the income rate level, mainly in India, is between 15 and 20 percent. Also, an increased income rate has a huge impact on the client corporation because it forces it to expand the time spend on knowledge transfer and educating new individuals. In order to address this issue, clients have started using contracts that feature âliabilityâ on the vendor for all the staff members that must be replaced.
Productivity fluctuations
Most IT enterprises register a decline of 20% in productivity during the first couple of years of the agreement, and this is usually caused by the amount of time spent on transferring business and technical knowledge to the vendor. Likewise, redundancies can cause moral distressto the âin houseâ personnel, and it usually leads to work dissatisfaction.
IT outsourcing has its benefits
Outsourcing IT services comes with plenty of benefits, and if you want to have a successful business you need to hire trusted individuals. Prior to hiring someone, make sure to ask them about past experience and reviews. In order to be sure that youâre 100% secure, the services you choose to employ must exceed your expectations. Fortunately, IT outsourcing has been converted over the years into full-time jobs for independent contractors worldwide.
Companies agree that itâs cheaper and more convenient to hire a freelancer than seek the services of a professional. Often times, freelancers tend to have a lot more experience than candidates with a degree in the business. As you can see, IT outsourcing has its ups and downs. Your company should be your top priority, so you need to be careful with the people youâre hiring on a full time basis.


Reasons, Risks and Rewards of IT Outsourcing - Image 1

Outsourcing means referring services from a customer or client to a third party service provider, which can be either local or foreign. The most common examples of outsourced activities comprise of: distribution and logistics services, IT services, delivery, marketing and sales services, human resources services, customer call center services, procurement services, and accounting services. Business owners need to be aware of the pros and cons of outsourcing, as these may influence the evolution of a company. For this reason, in the following article you are introduced several considerations related to IT outsourcing.

Common risks of offshore outsourcing

The moment services are outsourced to certain offshore providers, clients will face higher risks and costs in contrast with solutions that involve on-shore resources. Likewise, despite offshore outsourcing is more cost-effective, it usually has hidden fees involved, like a pricier and longer process of vendor selection, the offshore partner may need an extended time frame to complete the given task, and various other costs related to redundancies of local workers, that are not going to be relocated internationally, as well as turnover costs, and taxes associated with the addressing language, plus other cultural or communication issues.

Safety and data protection

Even if most IT companies regard offshore vendor security practices as remarkable (usually better that on-shore practices), the overall risks of security breaches or damaged intellectual propriety rights are undoubtedly raised when functioning internationally.

Process discipline

The Capability Maturity Model, or CMM, is an important factor that may determine a companyâs readiness to opt for an offshore model. Also, according to the META Group, nearly 70% of IT organizationsâ clients are only at the CMM Level 1, and offshore vendors generally require a CMM Level 5.

Forfeiture of business knowledge

It is vital for corporations to analyze business knowledge, and decide if opting for an offshore venue will influence in any way the organizationâs capability to continue performing at high levels.

Vendors incapable to deliver

Most IT businesses fail to introduce a contingency plan in case the outsourced work doesnât live up to the expectations of the client. High risks, or exposure might put extra pressure on a corporation, and make it to modify its entire outsourcing strategy.

Submission to governmental regulations

Generally speaking, financial service institutions, utilities, and healthcare organizations, often confront themselves with government oversight. For this reason, it is essential for an offshore vendor to comply with all the requirements specific to the industry and prove his submission.

The fast development of the outsourcing vendors has led to an active and energetic labor market, and usually the income rate level, mainly in India, is between 15 and 20 percent. Also, an increased income rate has a huge impact on the client corporation because it forces it to expand the time spend on knowledge transfer and educating new individuals. In order to address this issue, clients have started using contracts that feature âliabilityâ on the vendor for all the staff members that must be replaced.

Productivity fluctuations

Most IT enterprises register a decline of 20% in productivity during the first couple of years of the agreement, and this is usually caused by the amount of time spent on transferring business and technical knowledge to the vendor. Likewise, redundancies can cause moral distressto the âin houseâ personnel, and it usually leads to work dissatisfaction.

IT outsourcing has its benefits

Outsourcing IT services comes with plenty of benefits, and if you want to have a successful business you need to hire trusted individuals. Prior to hiring someone, make sure to ask them about past experience and reviews. In order to be sure that youâre 100% secure, the services you choose to employ must exceed your expectations. Fortunately, IT outsourcing has been converted over the years into full-time jobs for independent contractors worldwide.

Companies agree that itâs cheaper and more convenient to hire a freelancer than seek the services of a professional. Often times, freelancers tend to have a lot more experience than candidates with a degree in the business. As you can see, IT outsourcing has its ups and downs. Your company should be your top priority, so you need to be careful with the people youâre hiring on a full time basis.

This blog is listed under IT Strategy & Management Community

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