Question

Question 1: Outsourcing in IT [100 marks]
Sourcing practices relate to the way in which organizations procure equipment or services that are required to support operations.
1. Discuss the factors that should be considered before outsourcing IT services.
[25 Marks]
2. Analyze the advantages and the disadvantages of outsourcing IT services.
[25 Marks]
3. Identify and assess five risks that are associated with outsourcing IT services from an international organization [25 Marks]
4. Identify and discuss a strategy that could be used to manage contractors during outsourcing of IT services [25 Marks]

Answer 1

1. Discuss the factors that should be considered before outsourcing IT services.

Both big and small companies resort to outsourcing their business functions. Either they choose to outsource most of their functions or just a handful of them so that they can focus on core business aspects. In both cases, they need to take into consideration some key factors, which will ultimately help them take the informed decision. Let’s take a look at some of the factors to consider for taking outsourcing decisions for your business.

1) Cost Savings

When you talk in pure business terms, outsourcing needs to improve your business bottom lines through reduced operational costs. If you don’t see this happening anywhere in the near future, chances are that you’ll end up spending more than you end up saving. You don’t need to be an expert analyst to figure out where you’re heading. All you’ve to see is whether outsourcing will help you reduce a significant amount of your capital in hiring employee and equipment. At the same time, you will also need to maintain a balance between the quality and quantity of the services provided by the outsourced employees/firm.

2) Pricing

We already discussed how cost-cuttings by hiring talent in a low price tag is one of the most common factors why companies outsource. You’ll get several vendors offering their resources at a competitive price.

3) The Resources and Technology

Technology and resources are two considerations that are essential when you choose to outsource. Ask the vendor about the tools and technologies they are going to use for your project and how capable are they of handling all your outsourcing needs? What about the resources? Are they well trained for the assignments?

Answers to questions like these will lead the way to select the apt vendor who has the best resources and updated technology for seamless handling of your business functions.

4) The Ability To Meet Deadlines

Timeliness in outsourcing is as important as the costs. For instance, if a vendor fails to toe the deadlines, it can lead to major bottlenecks. That alone will nullify any cost-saving benefits that you had anticipated while hiring them.You need to ensure that the vendor adheres to the promised quality and timeliness. One of the ways to do this is by making all your queries beforehand.

5) Minimal Supervision

When you hire an outsourcing vendor to work on your business requirements, it’s a given that they are going to take care of everything from the scratch. There should be no room for sloppy or shoddy work and they should be able to produce the results. Choosing a responsible vendor who will be in charge of the projects is a must-have so that you only need to supervise them minimally and let them take it from there.

6) Limit The Liabilities

More often than not, there are certain functional areas that can build up liabilities for a business. This eats up time and money, which can be spent elsewhere. You can cleverly outsource certain functions to reduce the liabilities an extent.

7) Trustworthiness

Before you sign on the dotted line, do make it a point to visit the vendor’s site. Apart from this, also research on the internet to find more about the firm, the infrastructure, safety practices and the team that works there. This will help you assess the reliability of the service providers. If you have a reference who’ve worked with a vendor in the past, you can also ask them about the firm. This takes us to the next point.

8) Who’ll Lead The Team

You can’t just have blind faith in the outsourcing team even if you’re saving significantly by hiring them. Find out all that you can, including the team members who’ll be working on the projects and who’ll lead that team. Learning these facts upfront will save you from several agonies at a later stage. Moreover, when you know that your business functions are in able hands, you’ll be at peace.

9) The Service Level Agreement

The SLA (Service Level Agreement) is one of the most crucial documents when we talk about outsourcing partnerships. At the time of creating the document, make it a point to ensure that every single detail is written clearly. This will help you avoid you any kind of confusion or ambiguity especially about the quality of the services you’ll be getting.

10) Communication

Communication is the key whether you’re working onshore or with an offshore team. The vendors should be able to handle your queries and promptly reply without making you wait indefinitely. Their communication skills need to be spot on without any space for cultural or other communication barriers. This ensures that they have clearly understood your requirements and can address any issue that may crop up.

2. Analyze the advantages and the disadvantages of outsourcing IT services.

Advantages of Outsourcing

1. You Get More Experts

Your core team might be fantastic at a few things, but nobody is perfect at everything. By outsourcing particular tasks, companies are often able to substantially improve performance by drawing on the niche skills of experts in certain fields.

2. Things Get Done Fast

One of the top reasons small businesses tend to outsource work is because it will get done quicker. If you’re working with a limited number of staff members, you can get things done a whole lot quicker by passing time-consuming tasks on to freelancers or external agencies.

3. You’re Able to Focus on What Matters

Another benefit of outsourcing tasks is enhanced freedom. By passing on supporting processes, you’ll be able to concentrate your skills on strengthening and improving the core processes that help make your business tick.

4. You Can Share Some Risk

One of the most important factors in any project is risk assessment and analysis. By outsourcing certain campaigns or processes on to experts in their respective fields, you will benefit from their enhanced ability to plan and mitigate potential risks.

5. You Can Reduce Costs

As one might imagine, outsourcing piecemeal work is almost always going to be cheaper than hiring permanent full time staff. Not only will you save time and money on recruitment, but your profit will also be extended than s to shorter overheads.

Disadvantages of Outsourcing

1. You Lose Some Control

As you might expect, when you farm work out to external agencies or freelancers, you’re losing control of how those tasks are being monitored and performed. So long as you know and trust who you’ve hired, that shouldn’t be a huge issue – but you’ve got to tread carefully.

2. There are Hidden Costs

Although outsourcing work is generally considered cheaper, yo must also beware of getting ripped off. Outsourcing companies or big agencies will typically ask small business owners to sign lengthy contractual agreements, and they’ll include plenty of fine print. If you don’t read the terms carefully, you could get hit with unexpected costs.

3. There are Security Risks

In this age of data protection, it’s essential that you exercise caution whenever using customer data. If you plan to outsource processes that require personal data, you could be placing the privacy of others or security of your business at risk by passing that data on to other people.

4. You Reduce Quality Control

Outsourcing companies and some freelancers may often be motivated by profit rather than a job well done. That means the work you send out may come back quickly, but will lack the standard and quality that customers have come to expect from your products or services.

5. You Share Financial Burdens

Although it can be nice to bring in expert agencies to share in risks, it can be pretty dangerous to tie your business to the financial well-being of another company. Again, you’ve got to spell out any and all terms and conditions in contractual arrangements plainly – because you don’t want to take a financial hit if they fail to deliver.

3. Identify and assess five risks that are associated with outsourcing IT services from an international organization.

Loss of Control

Managers often complain about loss of control over their own process technologies and quality standards when specific processes or services are outsourced. The consequences can be severe. When tasks previously performed by company personnel are given to outsiders, over whom the firm has little or no control, quality may suffer, production schedules may be disrupted, or contractual disagreements may develop. If outsourcing contracts inappropriately or incorrectly detail work specifications, outsourcers may be tempted to behave opportunistically—for example, by using subcontractors or by charging unforeseen or unwarranted price increases to exploit the company’s dependency. Control issues can also be exacerbated by geographic distance, particularly when the vendor is offshore. Monitoring performance and productivity can be challenging, and coordination and communication maybe difficult with offshore vendors.

Loss of Innovation

Companies pursuing innovation strategies recognize the need to recruit and hire highly qualified individuals, provide them with a long-term focus and minimal control, and appraise their performance for positive long-run impact. When certain support services—such as IT, software development, or materials management—are outsourced, innovation may be impaired.

Loss of Organizational Trust

For many firms, a significant nonquantifiable risk occurs because outsourcing, especially of services, can be perceived as a breach in the employer-employee relationship. Employees may wonder which group or what function will be the next to be outsourced.

Higher-Than-Expected Transaction Costs

Some outsourcing costs and benefits are easily identified and quantified because they are captured by the accounting system. Other costs and benefits are decision-relevant but not part of the accounting system. Such factors cannot be ignored simply because they are difficult to obtain or because they require the use of estimates. One of the most important and least understood considerations in the make-or-buy decision is the cost of outsourcing risk.

4. Identify and discuss a strategy that could be used to manage contractors during outsourcing of IT services.

During a downturn in the economy when the demands for products and services touch the lowest level and cost is sky rocketing, outsourcing acts like a savior. Majority of the companies look for cost-effective solutions to run the business operations with effectiveness and maximizing the performance of an organization during the period of recession.​The cost of labor can take a toll on the profits of a business. In the tough times your definitive choice is outsourcing to increase your productivity at the same time you will end up saving substantial cost.

When you look for an outsourcing partner, you get a grasp on the procedures and approaches that can make your business run in a seamless manner.For instance, establishing positive relationship with the customers requires strategic skills that can become effective with the assistance of a genuine outsourcing services provider.

​When you outsource services to a company which is located offshore, the target is to access better workforce that can handle your tasks with a different approach and is identified as a turning point in business. There are some businesses that try to do everything on their own without realizing that it is a counter-productive step.​When you are trying to step into a phase of growth in business, it is necessary to envisage the big picture rather than getting into the realm of trivial tasks and taking proper steps can make all the difference.