Outsourcing is the act of delegating or subcontracting a process such as product manufacturing, provision of a certain service to a third party that is mainly a similar company in the industry. In the IT industry-related services are outsourced through delegating another company that is usually more experienced in providing such service on behalf of the Outsourcing Company (Terms and Definitions, n.d).
Outsourcing in IT industry
Many of the most successful organizations have adopted outsourcing practices in their operations and in the IT industry is not an exception. The IT and Business Process outsourcing industry is experiencing rapid growth, with outsourcing leading the trend there is a lot of efficiency within the organizations as resources such as financial inputs, human resources among others are minimized. Outsourcing is becoming a core component of companies’ corporate strategy The scope is expanding beyond traditional transaction processing to Specialised Skills where some companies are using outsourcing as a means to position themselves for long-term capability building (both skills and capacity).Thus outsourcing has become a competitive necessity. The new frontier is to integrate process and IT operations to improve effectiveness and efficiency (Offordile, 2002).
According to Offordile (2002), there are various benefits associated with Outsourcing in IT industry. They include:
To counteract Stiff Competition in the Market: Outsourcing enables firms to stand a better position on top of competitors since their services will be effective and efficient as delegated experts in such line of service providers provide them. This is because the service provided is usually of the best quality as experts in that field provide it with minimum resources.
Taking Advantage of First Class Workers in Low-Cost Firms: Since most of the outsourced firms are experts in such fields, their service is exemplary of first-class high quality. Firms that may be marginalized due to competition may take the advantage of outsourcing to remain in the field especially if they lack the capability to train their personnel.
Reduction of Risks
With companies outsourcing their services, uncertainties of low-quality service to clients are greatly eliminated, as the companies outsourcing such services does so to the most competent firm. Also it has been noted that the service provider and not the outsourcing company solely incur other risks that might be brought about by artificial or natural causes.
Minimal Capital Expenditure
For example, by outsourcing information technology requirements, a company does not have to buy expensive hardware and software or incur costs in training and hiring personnel. Such expenditures will be diverted to other projects in the company.
Few management difficulties
For instance, by outsourcing business processes such as Internet provision, a company no longer has to hire and manage the relevant personnel. If the firm outsources, it’s the duty of the service provider to manage and mobile all the required resources in order to give the outsourcing firm the required output.
Main Focus is on Core Competencies
Outsourcing non-core-related processes will allow a business to focus more on its core competencies and strengths, giving it a competitive advantage. For instance it doesn’t require training and be paying personnel whose job may be accomplished only in a few days on a monthly base
All the above advantages give a clear indication that the main purpose of outsourcing in the IT industry is to reduce costs, increase revenues and increase productivity; though there are several disadvantages associated with outsourcing in IT industry.
On the other hand Bechler & Pires (1997) Posits that there are also several disadvantages that arise during the process of outsourcing in IT industry, so before deciding on embarking on outsourcing a company’s business process or programs, the management should keep in mind the shortcomings associated with outsourcing which are mainly:
Difficulties in Managerial Control: It may be harder for the company to manage the outsourcing service provider as compared to managing its own employees. This is because the outsourcing service provider is independent of the contracting firm and may have managerial shortfalls resulting in delays among others.
The Subcontracted Company May Go Out of Business: If the outsourcing service provider goes bankrupt or out of business, the outsourcing company will have to quickly transition to a new service provider or take the process back in-house. This may be wasteful to the company’s resources mainly time or financial resources especially if the service provider had been funded in advance.
Sometimes it’s More Expensive to Outsource: According to Offordile (2002) it is cheaper to keep a process in-house as compared to outsourcing especially when the service is required oftenly. In fact in the long run it is more expensive than training your own personnel in that specific skill. Some services may be too costly to provide and may require highly qualified staff hence being costly for the company to outsource
Security And Confidentiality Matters: If your company is delegating vital and confidential business processes such as automation of payroll, confidential information such as salary will be known to the outsourcing service provider which can be a loophole for competitors to know your strengths and/or weaknesses. Outsourcing is therefore critical especially if the service provider is capable of accessing vital and confidential information concerning the secrets of the company.
Conclusion
Outsourcing is a trend that is being adopted by companies that are competitively fighting for the topmost position in their industries. Any senior management in a company that wants to increase or retain its huge market share should have in mind the power of outsourcing specifically in the IT function system. Hence companies should outsource their IT function in order to remain highly competitive in the business arena. This will enable companies save costs; provide high-quality services as well as increasing their profits, in the ever-dynamic business world. Outsourcing will also eliminate or lessen chances of unhealthy competition in the industry as well.
References
Bechler, K, Pires S, (1997) Outsourcing in the automobile industry: London: Oxford University Press.
Offodile, F,(2002), The impact of IT outsourcing on manufacturing strategy: Ohio: Kent University Press.
Wei, S,(2005), Economic Policy and Outsourcing: Prentice Hall: New York
Terms and Definitions. 2009. Web.