Information Technology Outsourcing (ITO)
It is a company's outsourcing of computer or Internet related work, such as programming, to other companies. It is used in reference to Business Process Outsourcing or BPO, which is the outsourcing of the work that does not require much of technical skills.
Advantages of Information Technology Outsourcing (ITO)
1. Focus On Core Activities
In rapid growth periods, the back-office operations of a company will expand also. This expansion may start to consume resources (human and financial) at the expense of the core activities that have made your company successful. Outsourcing those activities will allow refocusing on those business activities that are important without sacrificing quality or service in the back-office.
Example: A company lands a large contract that will significantly increase the volume of purchasing in a very short period of time; Outsource purchasing.
2. Cost And Efficiency Savings
Back-office functions that are complicated in nature, but the size of your company is preventing you from performing it at a consistent and reasonable cost, is another advantage of outsourcing.
Example: A small doctor’s office that wants to accept a variety of insurance plans. One part-time person could not keep up with all the different providers and rules. Outsource to a firm specializing in medical billing.
3. Reduced Overhead
Overhead costs of performing a particular back-office function are extremely high. Consider outsourcing those functions which can be moved easily.
Example: Growth has resulted in an increased need for office space. The current location is very expensive and there is no room to expand. Outsource some simple operations in order to reduce the need for office space. For example, outbound telemarketing or data entry.
4. Operational Control
Operations whose costs are running out of control must be considered for outsourcing. Departments that may have evolved over time into uncontrolled and poorly managed areas are prime motivators for outsourcing. In addition, an outsourcing company can bring better management skills to your company than what would otherwise be available.
Example: An information technology department that has too many projects, not enough people and a budget that far exceeds their contribution to the organization. A contracted outsourcing agreement will force management to prioritize their requests and bring control back to that area.
5. Staffing Flexibility
Outsourcing will allow operations that have seasonal or cyclical demands to bring in additional resources when you need them and release them when you’re done.
Example: An accounting department that is short-handed during tax season and auditing periods. Outsourcing these functions can provide the additional resources for a fixed period of time at a consistent cost.
6. Continuity & Risk Management
Periods of high employee turnover will add uncertainty and inconsistency to the operations. Outsourcing will provided a level of continuity to the company while reducing the risk that a substandard level of operation would bring to the company.
Example: The human resource manager is on an extended medical leave and the two administrative assistants leave for new jobs in a very short period of time. Outsourcing the human resource function would reduce the risk and allow the company to keep operating.
7. Develop Internal Staff
A large project needs to be undertaken that requires skills that your staff does not possess. On-site outsourcing of the project will bring people with the skills you need into your company. Your people can work alongside of them to acquire the new skill set.
Example: A company needs to embark on a replacement/upgrade project on a variety of custom built equipment. Your engineers do not have the skills required to design new and upgraded equipment. Outsourcing this project and requiring the outsourced engineers to work on-site will allow your engineers to acquire a new skill set.
Disadvantages of Information Technology Outsourcing (ITO)
1. Loss Of Managerial Control
2. Hidden Costs
You will sign a contract with the outsourcing company that will cover the details of the service that they will be providing. Any thing not covered in the contract will be the basis for you to pay additional charges. Additionally, you will experience legal fees to retain a lawyer to review the contacts you will sign. Remember, this is the outsourcing company's business. They have done this before and they are the ones that write the contract. Therefore, you will be at a disadvantage when negotiations start.3. Threat to Security and Confidentiality
The life-blood of any business is the information that keeps it running. If you have payroll, medical records or any other confidential information that will be transmitted to the outsourcing company, there is a risk that the confidentiality may be compromised. If the outsourced function involves sharing proprietary company data or knowledge (e.g. product drawings, formulas, etc.), this must be taken into account. Evaluate the outsourcing company carefully to make sure your data is protected and the contract has a penalty clause if an incident occurs.4. Quality Problems
The outsourcing company will be motivated by profit. Since the contract will fix the price, the only way for them to increase profit will be to decrease expenses. As long as they meet the conditions of the contract, you will pay. In addition, you will lose the ability to rapidly respond to changes in the business environment. The contract will be very specific and you will pay extra for changes.5. Tied to the Financial Well-Being of Another Company
Since you will be turning over part of the operations of your business to another company, you will now be tied to the financial well-being of that company. It wouldn't be the first time that an outsourcing company could go bankrupt and leave you holding-the-bag.6. Bad Publicity and Ill-Will
The word "outsourcing" brings to mind different things to different people. If you live in a community that has an outsourcing company and they employ your friends and neighbors, outsourcing is good. If your friends and neighbors lost their jobs because they were shipped across the state, across the country or across the world, outsourcing will bring bad publicity. If you outsource part of your operations, morale may suffer in the remaining work force.Implications of Information Technology Outsourcing (ITO)
- The areas impacted by HR outsourcing include some of the most transaction-heavy functions of personnel. This covers areas such as hiring, payroll processing, health benefits and retirement account management, collections, employee training, and IT areas that support the information and records needed by personnel.
- Clearly, one of the most attractive impacts of HR outsourcing is a perceived benefit of staffing flexibility. Companies can add or cut staffing as needed or as workload demands without worrying about being entangled in messy employee terminations and long hiring processes. This assumption generally works with outsourcing as long as the function outsourced is fairly general and standardized. If the tasks involved are highly specialized and require unique training, then the company will find itself in a pickle with perennially under-skilled staff.
- One of the more common misconceptions is that a company that begins outsourcing its personnel functions will see profit and gains right away. Frequently this does not occur. In fact, the opposite occurs where additional time and costs are realized getting the outsource provider to perform as desired. The benefits of efficiencies and moving redundant tasks outside are seen over a long-term period once the changes settle in.
- An immediate short-term impact is usually seen in the reduced cost of operation, at first. Many outsource providers will gauge what the cost of the functions are currently for the client company and price below them to be attractive. In the first years of operation this cost comparison will hold true, favoring the outsourcing option. However, as demands increase, specialization is desired, or workload increases, the cost for the outsource provider's services will go up.
- As noted earlier, another immediate impact will be the expenses associated with getting the outsource provider started in supporting a client company. Few situations allow an outsource provider to just start up cold. There will be training, familiarization, travel, certification that new processes will be correctly followed, and more. Frequently, transition to outsourced personnel support takes about a year to complete, depending on the scope of the services transferred. Simultaneously, there is also the cost and time spent eliminating the home staff that have now become surplus.
- An assumed impact by some companies who don't understand business law is to assume that once personnel functions are outsourced, the home company management is no longer responsible for them. This is not true; companies who outsource their services are still legally responsible for those functions and their actions under vicarious liability, a legal concept that extends legal responsibility to those who act in the name of a company. This can include both employees and vendors acting as a proxy for management.
1 comments:
imoha lang ang wala nahuman eh... hehehe pagsure dra elmera!!! bleeh..
Post a Comment