Discussion of Outsourcing and Its Pro and Cons - Assignment Example

Discussion of outsourcing and it’s Pro and Cons. By Department 17 April Outsourcing is buying of materials, services or components from suppliers instead of the company making them in-house; the trend is integrated with creating supply chain relationships in forward vertical integration or backward vertical integration (Joel D. Wisner, 2012). For example IBM outsourcing the laptops power supplies to Sony that’s is backward vertical integration and BAT hiring an outbound logistics providers DHL worldwide is an example of forward integration. IT outsourcing is the use of subcontractors or external suppliers to deliver and manage the IT business process either fully or partially. The IT functions include but not least software development, maintenance or support services in which the company deems cheaper to operate (Gartner, 2013). This occurs when an organization finds that its cheaper to contract a third party to manage it IT than building an in-house IT department; or out-source a software or data storage than buying and maintaining its own. IT insourcing is acquiring or taking back the IT functions that have been previously been outsourced to a supplier or a third party provider (3P). In insourcing the company takes control of valuable business process and cease entrusting the functions to a 3P. The main difference between insourcing and outsourcing comes in cost of the company, hence insourcing is more expensive as the company has to start from scratch whereas outsourcing the work is already flowing and the employees are familiar with the job (Marquis, n.d.). To achieve the same results insourcing firm uses its own acquired resources whereas in case of the outsourcing the firm uses the resources of the 3P. Insourcing involves placing a new location site for the operation site within the confines of the four walls of the organization, whereas involves using a facility that it’s outside the vicinity of the company. The insourcing the firm has total control of the employees and IT business process; whereas in outsourcing the management lacks or has no control over the way 3P operates (Marquis, n.d.). IT offshoring is relocating of IT business process from the primary country to another one to lower the administrative costs or due to lack of expertise in the primary country. This is mainly to take advantages of local resources, reducing costs and increasing the local market share; offshoring firm does not loss the ownership and the operations remain intact and unchanged (Lu, 2011). In IT offshoring jobs are transferred to the new country with a risk in language barriers, new laws and socio-political risks, whereas risks involved in the outsourcing are increased reliance of 3P and mismanagement of vendors and customers. Pro and Cons of IT outsourcing Some of advantages of IT outsourcing include:- Spreading of the risks thus minimizing of the company risks by outsourcing a qualified company with security compliance with good reputation of PCI compliance standards. This the 3P absorbs the risks by employing the necessary area of expertise in IT field required. Speed to adapt new technology, as the 3P IT service organization have the experience thus saving time in implementing of the new tech. The vast resources invested by 3P puts it’s in the right position to start new projects without hitches. To do the same projects in-house can cost the organization time, human resource hiring and vast capital injections (Essent Corporation, 2015). Expertise availability, the company may lack technological expertise to program a particular software Long time viability for non-core functions can make the company to deviate its core business mandate. A 3P can hold an license to provide a certain IT function, thus it will be unnecessary for a company try to acquire license to do some certain temporary IT functions (Joel D. Wisner, 2012). 3P bring in a level field to small companies that cannot acquire certain IT functions due to high costs, thus the small company can enjoy similar technology and expertise being experience by the big organizations through the outsourcing structure; hence managing costs time and giving the small companies economies of scale resulting to competitive advantage (Essent Corporation, 2015). 3P offers a flexible budget controls in that they convert capital expenditures (CAPEX) to operating expenditures (OPEX), thus the organization can pay for IT services needed; this maximizes on the ROI and ROE. Resource IT staff are expensive to hire and maintain; hence 3P gives the organization time to improve other departments subjecting human resources to the value of the organization. IT personnel is an integrated combination of experience and training; thus the 3P have time to train their personnel, coupled with experience. In-house employees can be isolated hence lacking the new technological advances in the market. IT outsourcing disadvantages Risks of confidential data spilling to the wrong hands, hence there is a risk of security and confidentiality in placing information on 3P. Fine prints when signing contracts might prove to be a hidden cost in an international agreement, hence turning to be expensive buy. Hence the firm incurs extra charges in legal fees, as the firm will be required to hire a lawyer to be reviewing all the IT contracts; this have to be done before so as to have an advantage before negotiations start (Global Outsourcing Agency, 2011). 3P may be providing services to numerous organizations, thus customer commitment and lack of customer focus may come into play, resulting to bad and expertise deficiency provided. In case the management hires wrong partner, the results may lack of synchronizing of the information and deliverables, hence more time consuming and sub-standard services given. After outsourcing the IT functions the management of the company losses control of the sector to the 3P, thus the quality of services are undermined as the 3P is driven in profit maximization by providing services to multiple organizations. The company balance sheet is tied on the financial health of the 3P, in-case of bankruptcy of the 3P, the firm is left holding bags. Works Cited Essent Corporation, 2015. The Top 10 Benefits of Outsourcing IT through Managed Services. [Online] Available at: http://www.essent.com/News/Blog/The-Top-10-Benefits-of-Outsourcing-IT-through-Managed-Services-284-24.htm [Accessed 16 April 2015]. Gartner, 2013. IT outsourcing. [Online] Available at: http://www.gartner.com/it-glossary/it-outsourcing [Accessed 16 April 2015]. Global Outsourcing Agency, 2011. Advantages and disadvantages of outsourcing. [Online] Available at: http://www.globaloutsourcingagency.com/adv.html [Accessed 17 April 2015]. Joel D. Wisner, K.-C. T. G. K. L., 2012. Principles of Supply Chain Management. 3rd ed. Mason: Cengage Learning. Lu, D., 2011. Fundamentals of supply chain management. 1st ed. London: Ventus Publishing ApS. Marquis, A., n.d. The Difference Between Outsourcing & Insourcing. [Online] Available at: http://smallbusiness.chron.com/difference-between-outsourcing-insourcing-32400.html [Accessed 17 April 2015]. Read More