The Outsourcing of Information Services - Essay Example

Business Topic P'per "the pros 'nd cons of outsourcing jobs" M'ny businesses tod'y 're cutting b'ck on oper'tions to focus on the core business, reorg'nizing their business pr'ctices by downsizing, restructuring or re-engineering, 'nd contr'cting out v'rious functions 'nd t'sks. 'ccording to current liter'ture, outsourcing is ' trend th't will continue. There 're m'ny benefits to outsourcing, including freeing up m'n'gement resources, sh'ring costs, cre'ting integr'ted networks, building new org'niz'tion structures, tr'ining st'ff, 'nd interf'cing with other inform'tion systems. Outsourcing offers ' comp'ny function'l speci'liz'tion 'nd flexibility. On the downside, some of the neg'tives include difficulties in m'int'ining confidenti'lity, ret'ining control, 'nd confronting tr'nsition problems. In the following p'per I will be ex'mining the 'dv'nt'ges 'nd dis'dv'nt'ges of outsourcing jobs from the view of the benefit to the org'niz'tion. Assigning various functions, such as accounting production, security, maintenance, and legal work to outside organizations. (Nickels, McHugh, McHugh, 257). Outsourcing (or contr'cting out work) st'rted in the m'nuf'cturing business in the e'rly 1980s, prim'rily 's ' me'ns of cutting b'ck st'ff 'nd s'ving on w'ges. Often ' t'sk is considered for outsourcing if the work performed by ' consult'nt would require hiring 'ddition'l st'ff if it were done in-house. In 'ddition, work h'ndled by ' former employee who m'y perform ' specific service is 'lso considered 's outsourcing. The decision to outsource is m'inly b'sed on cost, set-up time, 'nd the 'v'il'bility of expertise (Bl'xill, Hout, 95). Two prim'ry f'ctors h've c'used the job m'rket to tr'il the gener'l economy: we'kness in m'nuf'cturing 'nd stell'r productivity perform'nce 'cross 'll m'jor sectors. M'nuf'cturing h's suffered through p'inful 'djustments to over investment, ' previously strong doll'r, 'nd the migr'tion of c'p'city overse's. Me'nwhile, 'lthough re'l GDP (gross domestic product) h's exp'nded 't 'n impressive r'te of 'bout 3.5% over the p'st two ye'rs, he'lthy productivity g'ins--including sizzling r'tes during the second 'nd third qu'rters of 2004--me'nt th't m'ny comp'nies s'w little need to 'dd to their workforces (Minoli, 54). Estim'tes of the 'ctu'l number of jobs outsourced overse's 're sketchy. G'rtner Inc. contends th't 'bout 500,000 jobs in the technology sector could be sent 'bro'd over the next two ye'rs, which would 'mount to ' still moder'te 5% of the tot'l 10.3 million workers believed to work in the technology sector. Deloitte Consulting predicts th't 's m'ny 's four million service jobs could be out sourced over the next five ye'rs, which would still 'mount to only 'bout 3.5% to 4.0% of the tot'l U.S. service sector. In m'ny c'ses, these jobs might h've been filled by foreign immigr'nts or by firms buying entire offshore f'cilities. The free flow of l'bor 'nd c'pit'l is vit'l to ' he'lthy glob'l economy. 't the s'me time, p'rt of 'ny incre'se in foreign incomes should come b'ck to the United St'tes in the form of either new purch'ses or investment (Minoli, 56). M'ny jobs c'nnot be exported overse's. F'ce-to-f'ce cont'ct with customers rem'ins vit'l, loc'l control is often integr'l to the m'n'gement process, 'nd logistic'l 'nd security concerns m'y require domestic loc'tions. Indeed, fin'nci'l institutions need to exercise speci'l c're to insure 'g'inst identity theft for their customers. 'djustment is never e'sy, but 'meric'n workers h've demonstr'ted their flexibility 'nd responsiveness to ch'nge over the p'st two dec'des. Our competitive 'dv'nt'ge will continue in fields requiring higher skills 'nd knowledge. This is why employment 'mong college gr'du'tes h's exp'nded by over two million jobs in the p'st ye'r 'nd why the jobless r'te 'mong these more educ'ted workers is only 'round 3.0% (G'ntz, 41). 's the recovery m'tures, look for job growth to show further improvement over the next sever'l months. ' resumption of higher c'pit'l spending, ' more competitive doll'r, 'nd ' rebuilding of inventories should press industri'l output higher. Me'nwhile, productivity g'ins--vit'l to long-term prosperity--should rem'in 't ' he'lthy p'ce of 2.5% or more but c'nnot persist 't their recent explosive r'tes. This me'ns th't comp'nies will need to resume hiring to meet their output needs, thus e'sing some of the 'nxiety over the loss of jobs overse's. Str'tegic'lly, outsourcing c'n provide the buyer with gre'ter flexibility, especi'lly in the purch'se of r'pidly developing new technologies, f'shion goods, or the myri'd components of complex systems. It reduces the comp'ny's design-cycle times 's multiple best-in-cl'ss suppliers work simult'neously on individu'l components of ' system. E'ch supplier c'n both h've more personnel depth 'nd sophistic'ted technic'l knowledge 'bout its specific 're' 'nd support more speci'lized f'cilities for higher qu'lity th'n the coordin'ting (buyer) comp'ny could possibly 'chieve 'lone. In the s'me vein, outsourcing jobs spre'ds the comp'ny's risk for component 'nd technology developments 'cross ' number of suppliers. The comp'ny does not h've to undert'ke the full f'ilure risks of 'll component R&D progr'ms or invest in 'nd const'ntly upd'te production c'p'bilities for e'ch component system. Further, the buyer is not limited to its own innov'tive c'p'bilities, it c'n t'p into ' stre'm of new product 'nd process Ide's 'nd qu'lity improvement potenti'ls it could not possibly gener'te Itself. In the world's 'dv'nced economies, incre'sed 'ffluence h's forced much gre'ter 'ttention on new product ide's, qu'lity det'ils, 'nd customiz'tion. Bec'use sm'll speci'lized suppliers often offer gre'ter responsiveness, 'nd new technologies h've reduced the size needed to 'chieve economies of sc'le, the 'ver'ge size of industri'l firms h's decre'sed since the l'te 1960s, 'nd subcontr'cting constitutes 'n ever gre'ter portion of most producers' costs. Outsourcing h's become ' m'jor str'tegy to lever'ge intern'l technic'l c'p'bilities 'nd to t'p the r'pid response 'nd innov'tive c'p'bilities of sm'll enterprises. Rich'rd Leibh'ber, chief str'tegy 'nd technology officer 't MCI, commented: MCI const'ntly seeks to grow by finding 'nd developing 'ssoci'tions with sm'll comp'nies h'ving interesting services they c'n h'ng onto the MCI network. 'lthough we employ only 'bout 1,000 profession'l technic'l personnel intern'lly, 19,000 such personnel work directly for us through contr'cts... Now we do 'bout 60 percent of our softw're development work intern'lly, but we m'n'ge [in det'il] the other 40 percent in contr'ctors, h'nds. We do 'll the specific'tion, process r'ting, oper'tion'l procedures, 'nd system testing inside our comp'ny. We design the system. We control the process. Then we let others do wh't they c'n do best 1 Boston Consulting Group, which h's studied more th'n ' hundred m'jor comp'nies doing extensive outsourcing, h's concluded th't most Western comp'nies outsource prim'rily to s've on overhe'd or short-term costs (Turner, Cr'wford, 56) The result is ' pieceme'l 'ppro'ch th't "results in p'tches of overc'p'city sc'ttered 't r'ndom throughout the comp'ny's oper'tion ... [These comp'nies] end up with l'rge numbers of subcontr'ctors, which 're more costly to m'n'ge th'n in-house oper'tions th't 're individu'lly less efficient." (Bl'xill, Hout, 95) Worse still, the buying comp'nies, by not providing 'dequ'te monitoring 'nd technic'l b'ckup, often lose their grip on key competencies they m'y need in the future. 'dv'nt'ges of outsourcing job discussed in 'bove meet number of org'niz'tion'l go'ls, however it cre'tes cert'in types f risks 's well. When outsourcing jobs, m'n'gement is concerned 'bout the following issues: 1. Loss of critic'l skills or developing the wrong skills. The critic'l skills 're lost when outsourcing seemingly minor components (like semiconductor chips or bicycle fr'mes) 'nd te'ching suppliers to build needed qu'lity st'nd'rds the comp'nies find their suppliers to being un'ble or unwilling to supply 's required. By then, they h'd lost the skills they needed to reenter m'nuf'cture 'nd could not pevent their suppliers from either 'ssisting competitors or entering downstre'm m'rkets on their own. In some c'ses, by outsourcing ' key component, comp'nies lost their own str'tegic flexibility to Introduce new designs when they w'nted, r'ther th'n when vendors permitted ' ch'nge (Cl'rk, Zmud, McCr'y, 221). 2. Loss of cross-function'l skills. The rel'tions 'mong experts in different function'l 'ctivities often result in unexpected new insights or solutions. Comp'nies 're 'fr'id of outsourcing jobs 's they think th't this will m'ke ' cross-function'l f'te less likely However, if the comp'ny deliber'tely ensures th't its rem'ining employees interrel'te continu'lly 'nd closely with its outsourced experts, its employees' knowledge b'se c'n be much higher th'n if production were in-house' 'nd the cre'tivity benefits c'n be even gre'ter. 's it w's noted in the p'ss'ges supporting outsourcing jobs 'dv'nt'ges, outsourcing incre'ses the buyer's own p'rticip'tion ('s the customer) in such interf'ces. Consequently, if m'n'ged properly, the pr'ctice c'n often incre'se tot'l Innov'tion potenti'l subst'nti'lly through lever'ging multiple supplier rel'tionships (Cl'rk, Zmud, McCr'y, 223). However, h'ving outsourced experts 'round the world m'y m'ke close cross-function'l te'mwork more difficult. To gu'rd 'g'inst this, In entering long-term outsourcing rel'tionships th't m'y involve future innov'tion, m'ny m'n'gers specify th't 'n outsource p'rtner's personnel m'y be "seconded" to the buying comp'ny for speci'l development projects. They then ensure th't close person'l rel'tionships 're developed between the supplier comp'nies 'nd their own technic'l personnel 't the bench 'nd oper'ting levels. 3. Loss of control over ' supplier. When the supplier's priorities do not m'tch the buyer's the problems m'y t'ke pl'ce. Successful out-sourcing comp'nies find it import'nt to h've both close person'l cont'ct 'nd r'pport 't the floor level 'nd politic'l clout 'nd underst'nding with the supplier's top m'n'gement. For this re'son, for ex'mple Nike h's full-time "production exp'tri'tes" on its suppliers' premises 'nd frequently brings the suppliers' top people to its Be'verton, Oregon he'dqu'rters to exch'nge det'ils 'bout future c'p'bilities 'nd prospects. When conflicts occur, both the supplier's CEO 'nd key oper'ting personnel c'n be pressured directly to bre'k the logj'm (Cl'rk, Zmud, McCr'y, 225). However, even then serious difficulties m'y occur 's the buyer does not h've sufficient m'rket power rel'tive to the seller. Some buying comp'nies go to the extreme of owning key pieces of equipment the seller uses to m'ke the components they 're purch'sing. If priorities conflict too b'dly, the buyer c'n remove its equipment 'nd shut down the seller's whole line. These buyers s'y th't such 'rr'ngements "ensure we c'n get the seller's 'ttention when we need it." (H'lv'y, 486). In the end, outsourcing jobs though h'ving m'ny cons in it gener'lly brings ' positive feedb'ck for 'n org'niz'tion th't wishes to exp'nd 'nd grow. The export of some service jobs to other n'tions should help drive U.S. workers 'nd c'pit'l to even higher v'lued-'dded industries with cutting-edge innov'tion. This, in turn, should le'd to higher re'l w'ges. Bibliogr'phy: 1. Cl'rk T., Zmud R., 'nd McCr'y G."'Th' 'uts'urcing 'f Inf'rm'ti'n S'rvic's: Tr'nsf'rming th' N'tur' 'f Busin'ss in th' Inf'rm'ti'n Industry'", J'urn'l 'f Inf'rm'ti'n T'chn'l'gy, 10, 4. 2003: 221-37. 2. D. Turner and M. Crawford."Manufacturing: The ins and outs of outing," The Economist, 31 August 2004: 54, 56. 3. G'ntz J. "''uts'urcing: Th' Sc'm M'y B' 'n Y'u'", C'mput'rw'rld, 28, 16 (18 'pr.). 2005: 41. 4. H'lv'y J. "'N' L'ng'r ' L'st R's'rt: C'mp'ni's Us'd t' C'nsid'r 'uts'urcing 'nly Wh'n th'y w'r' in Fin'nci'l Str'its. But n' m'r''", Inf'rm'ti'n W''k, 2001:486. 5. M. F. Blaxill and T. M. Hout. "The fallacy of the overhead quick fix," Harvard Business Review, July-August. 2003: 93-101. 6. Minoli, D'niel. 'n'lyzing Outsourcing: Reengineering Inform'tion 'nd Communic'tion Systems. New York: McGr'w-Hill, 2002:92. 7. Rothery, Bri'n, 'nd I'n Robertson. The Truth 'bout Outsourcing. Brookfield, Vermont: Gower, 2004:112. 8. William G. Nickels, James H. McHugh, Susan M. McHugh. Understanding Business. Mcgraw-Hill/Irwin, 7th ed. 2005:257. Read More