Introduction
Outsourcing is a tactical organization alternative, and not merely a means of reducing operational costs in a company. Most organizations choose to outsource to reduce costs and reduce the time taken for marketing (Haag & Cummings, 2008). In this paper, I look at some of the considerations and risks involved in outsourcing.
Critical Factors in Outsourcing Information Technology (IT) Functions
I believe that for any outsourcing venture to be successful, the outsourcing company must clearly set its goals and understand the risks involved. The company should also decide which functions it needs to outsource.
Other factors that determine the success of an outsourcing venture include performance delivery and effective management of the contract (Haag & Cummings, 2008). Relationships among and between teams also need to be strong. I consider other factors to be cost management, a supplier who understands the needs of the client, proper application of service level agreements, flexibility, effective communication, and technical expertise.
Functions to be Outsourced
I do not believe that outsourcing should be taken as an absolute solution that fixes the corporation’s dwindling or broken functions. The decision to outsource a company’s broken functions and activities only takes the broken functions out of the company’s control. The best alternative is to fix the broken functions before considering outsourcing. Another alternative is to outsource only those functions that promise the growth of the company, loyalty of customers, and a return-on-investment.
Though past trends indicate that most businesses are likely to outsource customer-facing functions, new trends are emerging that encourage the outsourcing of knowledge-based functions. Some of the functions that can be outsourced include human resource, Information Technology (IT) and website services.
Risks Associated with Outsourcing
Outsourcing has a disadvantage of limiting the technical knowledge of a company’s staff since the company depends on another firm’s knowledge base (Haag & Cummings, 2008). There is also the risk of losing control of the outsourced function. In addition, the vendor may not be as dedicated as the company’s full-time employee. It is also necessary to consider confidentiality and the impact of outsourcing on employee motivation. Moreover, outsourcing increases a company’s dependence on other companies for its core functions.
Advantages and Disadvantages of Short Cycle Time Development
Short cycle time development involves speed in completion, release oriented prototyping, adherence to a fixed architecture, and negotiable quality. The main advantage offered is the use of rapid application development tools to deliver the final product within a short period of time (Haag & Cummings, 2008). Progress made can be easily measured throughout the cycle. However, the management of this system is complicated and requires additional resources. In addition, short cycle time development is suitable for component-based and scalable systems. It also needs the engagement of the operator during the cycle. The need to dedicate human and material resources throughout the process and the demand for specialized expertise pushes some companies to outsource such functions.
Cultural Barriers when Offshoring IT Development
Cultural dynamics such as culturally reinforced habits and social norms form part of a wide variety of institutional aspects that prompt offshoring decisions (Burkholder, 2006). The cultural challenges that organizations face when they attempt to offshore certain functions include differences in language, business practices, business environment, governance and legal systems, as well as difficulty in translation.
To solve these problems, client corporations as well as offshore vendors should invest in training employees and managers in ways of expanding their cross-cultural ability. Companies can also conduct culturally sensitive resource deployment. This includes having in place local on-site personnel to manage the onshore client relationship. Companies can also employ culturally attuned offshore workers.
Conclusion
Outsourcing is gradually growing into an important business approach that is gaining popularity among business corporations. Though there are extensive studies on the critical success factors of outsourcing, I believe that it is important to note that any two companies are unique in terms of needs. Therefore, an outsourcing model that works for one company may not necessarily work for another.
References
Burkholder, C. N. (2006). Outsourcing: The definitive view, applications, and implications. New Jersey: John Wiley & Sons.
Haag, S., & Cummings, M. (2008). Management information systems for the information age (Laureate Education, Inc., custom ed.). Boston: McGraw-Hill/Irwin.