Outsourcing Services – Is It a Good or Bad Idea?

When searching on the Internet what outsourcing means, you will find a lot of definitions about it, among which you can read that it “denotes utilization of external resources.” This means that outsourcing happens when all of the things that should be completed inside the company are given to someone from the outside to perform them. Queen and Duhamel defined outsourcing the same way as most of the people, and according to their definition every strategic outsourcing has five elements:

  1. A strong connection between the outsourcing processes and the key success factors of a company in an industry;
  2. Transfer of all personnel and physical assets to the company doing the outsourcing;
  3. A thorough contract containing all the details about the relationship between the company employing the service provider and the service provider itself;
  4. A commitment between the company employing the service provider and the service provider itself, which isn’t over a short period of time, but a longer period;
  5. A detailed and concise description of the obligations of both sides.

Outsourcing enables companies to focus on their strategic tasks and goals. So, you get two things with one – a) you will be able to focus more on your goals, and 2) you will cut your expenses as outsourcing your services to someone from the outside can be cheaper than having someone in your company do it – they may not have the proper expertise, and thus will cost you time and money as well.

Many people think that hiring consultants as internal members of their IT organization is equal to IT outsourcing. On the contrary, that is not true outsourcing. When talking about outsourcing, we are talking about transferring all applications to servers that are physically located on the service provider. In this case, the service provider is responsible for the uptime, connectivity, and maintenance of all the applications, and hardware according to the agreement and right now we are talking about true IT outsourcing.

The benefits of having your business outsourced are many and IT companies usually engage in outsourcing to save costs, better focus on their core business, or the final reason why they think that their internal IT operations are inefficient, ineffective and/or incompetent. In addition to this, when you outsource you are always in line with all the technological and environmental changes that happen. And you get increased flexibility – which in the world of today is really important.

The following table gives an overview of the most frequently discussed benefits, besides improved financial performance, increased focus on core competencies, etc.

Outsourcing Services - Is It a Good or Bad Idea?

                                 Picture Source: AUTEX Research Journal, Vol. 4, No4, December 2004 © AUTEX

 

To sum up, there is a general notion that if all of these benefits are realized, outsourcing will be the strongest trend in the next decade. There is one fear, which is reasonably acceptable, that the company which is using outsourcing over time will lose some control over the company doing the outsourcing, whose only purpose is to increase its profits. So, our general conclusion would be that Yes, outsourcing is a good idea, BUT you have to know your service provider good, its potential, the possibilities your outsourcing partner has to offer, and the value that it will provide to you. Moreover you, as a company that is using outsourcing services should have trust in your service provider.

 

 

References:

 1.Queen B, Duhamel F., Bringing Together Strategic Outsourcing and Corporate Strategy:

Outsourcing Motives and Risks, European Management Journal Vol. 21, No. 5, 2003, p. 652;

2. (S.Slaughter and S.Ang,“Employment Outsourcing in Information Systems,”ACM, July 1996,pp. 47- 54)

3. Lewin J.E., Johnson W. .J, The effects of organizational restructuring on industrial buying

behavior: 1990 and beyond, Journal of Business & Industrial Marketing vol. 11 no.6 1996, pp. 93-111

4. Vining A., Globerman S., A Conceptual Framework for Understanding the Outsourcing Decision,

European Management Journal Vol. 17, No. 6, 1999, pp. 645.654.