Outsourcing is a term that is used to describe the venture of an organization to subcontractor give work out to another company for reasons related to cutting costs or maintaining a flexible workforce. Outsourcing ventures arise as a result of strategic management decisions within an organization (Al- bulushi, 2009). IT outsourcing involves giving IT work of an organization for another company to run for purposes of reducing the IT costs
Factors Leading to Outsourcing
Outsourcing can be considered when an organization is strategizing on cutting labor costs. With an outsourced IT department, no one needs to spend on payroll taxes, sick time or employee vacation not to mention training the IT employees (Root, 2010). For reasons of focusing on the core business within an organization, IT outsourcing can also be considered. Factors of keeping up with technology, repairs, and upgrades do not make the core business. Outsourcing such assignments assist the firm in keeping focused on its available resources and as well as in profits maximization.
Expanding the organization or business can be another reason to pursue outsourcing options. This is because when a firm focuses on business expansion, it becomes hard to deal with such growth.
There are circumstances that might need a particular organization to get first hand experience on a modern IT technology that would otherwise take ages to catch up to. In such cases, the organization would seek the services of an IT outsourcing service provider who is constantly updating himself with current technology that the organization in question may not easily access.
Risks Associated with Outsourcing the IT Function
According to Slater (2004), one of the primary risks associated with IT outsourcing is cost overruns brought about by miscommunication. IT outsourcing of an organization can sometimes be taken by intelligent foreign IT professionals who miss out on important details in a conversation. In a scripted conversation, the language barrier can make such a professional fail to pick out the most vital information (Lister 2010).
The organization, therefore, stands to incur serious demerits due to this problem. Even though IT jobs can be easily outsourced, accountability does not always come with the package. Organizations love to have employees that would be committed to the company and venture out to make it successful (Lister, 2010). An outsourced employee will in most cases not feel “connected” to the organization and its product. He will therefore be missing the accountability to give superb service.
IT outsourcing by an organization also brings about the risk of unexpected expenditures brought about by the potential of IT products being different from the organization’s design. Lister (2010), explains that this is caused by the software code being conceived differently by an organization from the way it is written by the outsource service provider.
Benefits of Outsourcing
IT outsourcing makes an organization stand a mega chance of cutting down on its expenditure, to nearly more than half in some cases (Slater, 2004). In addition, there comes the merit of growing the business network. Furthermore, IT outsourcing will eventually get the peace and time it needs to perform other management and core business tasks that will eventually lead to the expansion of the business. These benefits will eventually make an organization increase its level of competitiveness to the global level, suppose it is a small company that seeks to grow.
Costs in an Outsourcing Agreement and Dollar Impacts
Costs within an outsourcing agreement originate from three basic levels; primary activities, secondary activities and incremental costs (Lockridge, 21010). Primary activities involve basing costs on services that are hands-on experience, which might be designing software for the organization. Secondary activities involve costs based on services additional to major tasks, like say billing, training permanent employees, and the like. Lastly, incremental costs originate from extra activities that were critically needed but unplanned-for during the outsourcing services.
The Dollar has a major impact on outsourcing. According to Villegas (2008), many Philippine outsourcing companies opt to find clients in Europe due to the decreasing value of the U.S. dollar in the global market. The implication here is that the dollar has a maj0or impact on the flow of outsourcing business since companies tend to go for outsourcing services to the U.S.A only if the dollar value is high in the global market.
Implications to the Business organizational Structure and Personnel Issues
The organizational structure stands to lose in cases where outsourcing an IT department brings about losses. Nevertheless, an organizational structure is supposed to foresee and take favorable steps before engaging an outsourced IT department. For example, in cases of communication barriers, a bilingual employee can be brought on board (Slatter, 2004). Potential personnel issues on the other hand may include difficulties in knowledge and skill transfer due to egocentric feelings. Employees within an organization might not take lightly the idea of being trained by outsourced personnel due to the sense of superiority acquired by being part of the organization.
IT outsourcing can be very beneficial to an organization. However, when several risk factors and implications are not critically considered, such benefits will be minimal and loses will be met.
Al-bulushi, Y. (2009). Outsourcing. Web.
Lister, J. (2010). The major risks of outsourcing in IT. Web.
Lockridge, D. (2010). Where Do Costs Originate in an Outsourcing Agreement? Web.
Root, N. G. (2010). Reasons for IT outsourcing. Web.
Slater, F. W. (2009). IT offshore outsourcing. Web.
Villegas, B. J. (2008). The impact of US Dollar Downfall to Outsourcing. Web.