Reasons, Risks and Rewards of IT Outsourcing
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.
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.
The Capability Maturity Model, or CMM, is an important factor that may determine a company’s readiness to opt for an offshore model. Also, according to the META Group, nearly 70% of IT organizations’ clients are only at the CMM Level 1, and offshore vendors generally require a CMM Level 5.
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 “liability†on the vendor for all the staff members that must be replaced.
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