Advantages & Disadvantages of Outsourcing

author

Alberto Caramanica

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Index

Introduction Core competencies Outsourcing Outsourcing the IT functions Examples of IT functions Advantages of Outsourcing Disadvantages of Outsourcing Conclusions

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Introduction

To compete effectively, it is essential for business to concentrate on what they do best and where they can add value.

Organizations have switched emphasis to concentrate on their core competencies in order to increase market penetration and become more competitive.

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Core competencies

Core competencies are the capabilities of an organization that truly distinguish it from its competitors.

They are unique capabilities upon which the success of the company depends.

They are what gives an organization its clear leadership position as seen by its customers.

All remaining activities are non-core competencies.

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Outsourcing

Outsourcing involves the transfer of the responsibility for carrying out an activity to an external service provider.

Outsourcing covers a range of different types of functional areas (in terms of non-core competencies), including human resources management, product management, marketing management, and most commonly the management information systems.

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Outsourcing the IT functions

Can the IT departments enhance our corporate financial goals?

Are the current IT resources capable of supporting new technology?

Is there a quicker, more effective method to handle IT issue?

these questions may help to decide to outsource or not the information technology functions.

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Examples of IT functions

Managed network services. End user computing services. Applications development and maintenance

services. Service desk / Help desk. Cross functional equipment and software

services.

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Advantages of Outsourcing

Minimizing cost on IT infrastructure. IT consultants are fully trained on the latest

technologies. Service providers can offer more up-to-date

advanced technologies. No need to retain technically qualified in-

house personnel. Continuous IT support coverage without

having to rely on only one or two key people.

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Disadvantages of Outsourcing

Hidden costs are difficult to calculate or prepare for.

Some degree of control is lost. Sometimes, communication skills are not

satisfactory in the for every team-player of the service provider.

Possible loss of flexibility in reacting to changing business conditions.

Risk of fraud and confidentiality issues.

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Conclusions

To go for outsourcing or not a company must make a comprehensive cost benefit analysis.

The main reason to outsource is freeing up resources to invest in a core competency.

It should never be outsourced an activity that is part of the core competencies (…that's giving away the company's future!).