Information Technology (IT) outsourcing is the process of delegating a corporation’s business processes to third parties in order to improve the value of products, services and influence benefits ranging from low cost labor through the internet. Since 1990, companies have considered IT outsourcing because of various reasons (IT Outsourcing 2). The need for computing power in order to access effective cost is one of the major reasons why companies outsource. Labor and related costs are on the rise in many countries. Therefore, organizations have resolved to seek advanced computing power that can help them reduce and control costs. This has also been influenced because of the relatively cheaper expenses they incur from other countries.
Secondly, in small companies and organizations with very low technology; have been trying to avoid in-house IT expertise and skill sets. The skills gap that is present in various small companies has resulted to lower expertise levels that yields poor produce. Smaller companies may face loses because of lower skill sets. Therefore, companies resolve the issue by outsourcing for more talent in the IT sector that will help them actualize their goals. Finally, companies have realized the need to access special functional capabilities (Plugge 50). The returns on investments are greater when companies have outsourced information on new technologies. These special capabilities are like clouding. Through such innovations, companies are able to attain well-trained staff and proper certifications that help it function more appropriately. When they use new available technology, companies are likely to profit more in business.
However, outsourcing has certain disadvantages that affect companies (IT Outsourcing 11). Higher costs may be incurred while outsourcing. This commonly occurs because while signing contracts, there are certain hidden costs that are not outlined in the contract. This means that the additional expenses that are not covered within the contract have to be paid by the outsourcing company. In addition, outsourcing locks a company to a specific provider. This is because the company is tied financially to the provider, which limits its ability to farm out from other companies. Thus if the overseas company faces financial problems, the outsourcing company has to face them too.
The companies lose their control over issues relating to their organization. Before they make any changes, they are forced to involve their partners in decision-making. It results to high risks when IT groups are established from scratch and cause huge financial loses. Quality problems may also arise (Plugge 34). This is because partner companies may be forced to reduce the expenses so that they can earn higher profits and attain the targets set by outsourcing companies. This factor breaks the company’s confidentiality and security because outsourcing requires the companies to share vital information between them when solving such issues. The company’s reputation my also be destroyed due to the low quality products.
Companies make use of the ‘Position in the Strategic grid frameworks to analyze IT outsourcing decision. The grid analysis puts into consideration all the factors that are affected by outsourcing such as cost options, contract length, the technology involved and service levels. It places these factors against the other thus helping in making decisions. Moreover, companies having a position in the Strategic grid frameworks have the capability to measure the weight of the factors with the relative importance of each before making any decisions. Therefore, the companies have the authority needed before making any decisions regarding outsourcing.
Outsourcing and contracting are two different terminologies. Outsourcing is the process that involves a company transferring part of its ownership to its supplier while contracting is the purchasing of goods and services by a buyer from the vendor. The buyer owns the process in contracting as opposed to outsourcing by instructing the supplier on how to go about providing services. Whenever the supplier of the service owns the processes, the scenario is termed as outsourcing (Jimmoh and Komolafe 1). Conversely, when the company receiving services and products owns the process, it is termed as contracting.
Right shoring is the situation where business workings and processes are placed in localities and nations hence provide the best combination of charges and competence (DHL Supply Chain 2). It does not require companies to move their processes overseas for efficiency. This is because the company is able to analyze the complexity in their business processes. Right shoring strategy works by outlaying the importance of the required tasks in a company and entrusting its achievement to the most suitable labor force despite their location. It provides a balance between work types that can be outsourced and those that should remain within the country.
Right shoring saves on time and costs. This is because it dictates the type of work that should be outsourced such as those that have lower levels of importance. This saves time because domestic workers are able to work on complex jobs that are more important (DHL Supply Chain 2). Costs incurred while outsourcing are also minimized because domestic workers who have the required expertise can work on the job regardless of their location. Examples of right shoring are work at home employees. They save commuting costs and time taken to get to the office since they are able to use services such as the internet for communication purposes regarding work.
DHL Supply Chain. Right Shoring: Claiming Competitive Advantage by Managing Complexity Across The Changing Global Supply Chain. New York: DHL Supply Chain, 2009. Print.
IT Outsourcing. n.d. Print
Jimmoh, William and Komolafe Babajide. “Outsourcing is Different From Contracting-Awonaike.” Vanguard. Vanguard Media, May 16, 2013. Web. November 13, 2013.
Plugge, Albert. Managing Change in It Outsourcing: Towards a Dynamic Fit Model. Basingstoke: Palgrave Macmillan, 2012. Print.
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