Archive for September, 2007

More For Less OR Less For more?

Tuesday, September 4th, 2007

What Is Outsourcing And How Can You Protect Yourself? Outsourcing is when a company contracts with another company to perform non-core duties. According to several news resources, India is one of the most popular destinations for outsourced IT work. Why? It all boils down to economics, companies want to make money, and they want to save money. By contracting a third party supplier to perform non-core duties at lower wages a company can save a substantial amount. Given the high consumer demand for software development, computer programming and troubleshooting outsourcing seems like a sensible solution. But, is it really? The purported benefits of outsourcing include lower employee wages, better time management and concentration on core company competencies. However, you must ask yourself if the supposed benefits outweigh the potential dangers that can cost more than you bargained.

When contracting a third party for outsourcing, there are a number of factors which should be considered. For instance, what are the intellectual property laws of the country you are outsourcing to? This is an extremely important question for companies involved in the sharing or development of proprietary software. Privacy concerns, the safe and secure handling of client information (social security numbers, home addresses, credit card information, etc.) is another key factor to consider before outsourcing to a third party. Lastly, there is the question of liability. As much as we would like to think that everyone is honest and trustworthy, the truth can be quite different. A company must protect itself with an indemnity clause in the body of their outsourcing contract. This clause should clearly state that they will not be held responsible for the acts or omissions of the supplier. Furthermore, it should allow for the protection of the company just in case a third party lawsuit arises. Without taking these protective measures, companies may fall prey to security breaches, identity thefts and much more.
What Are The Advantages of Outsourcing?

If done correctly, the benefits of outsourcing far exceed simply saving money. By outsourcing non-core duties to suppliers a company does two things: allows for internal restructuring and greatly improves the quality of core products or services.

What is internal restructuring? Well, by internal restructuring we mean the detailed analysis of a company’s tier structure. When undergoing internal restructuring a company will ask itself two questions: is the task essential to the functioning of the company and can it be done just as effectively by a supplier while incurring minimal expenses?

Generally, these two questions are pivotal to determining whether or not outsourcing is a good fit for a company. Now, how can outsourcing non-core duties improve the quality of a company’s products or services? In business, time and money are of equal value. By outsourcing non-core duties to suppliers, a company is freeing up personnel and money. Ideally, by freeing up personnel, a company can grasp a better understanding of its product and core services and aim for perfection by training and promoting from within its own employee pool. The benefits of promoting from within should be quite obvious: clear understanding of company product and objectives, achieved level of training through on site experience and employee loyalty.
What Are The Disadvantages Of Outsourcing?

No matter what measures a company takes to protect itself, there will always be a certain amount of risk involved in outsourcing any project. A company must put into play a contingency plan that allows room for unforeseen circumstances and human error. For instance, if you are going to outsource work to India, Philippines or Mexico a company must have a clear understanding of cultural differences, language barriers and the country’s infrastructure.

For instance, what would happen if a company has an anticipated due date for a very important project and there is a natural disaster in the country they have outsourced to? If the company does not have on site trained staff at their local facilities, production may have to come to a complete halt or they may have to take staff off of ongoing projects to handle this emergency. In the long run, they will lose time, money and very possibly, the project.

What about the language barrier, lets face it, not all things can be easily translated or easily understood once they have been translated. Does the company have any knowledge of the country’s language and customs? Not understanding the language, customs and the country’s holidays can lead to loss of control, delays in production, loss of money and most importantly, a rift in the relationship between the supplier and the company. Once this rift has occurred, anything can happen! Suddenly, the company can very well find itself at the mercy of a supplier that they have never met in person and can only speak to via telephone or computer.

Outsourcing is a huge responsibility for all parties involved, but the person that is doing the outsourcing must take on dual responsibility. Once this decision has been made, the outsourcing company must become jack of all traits: commander and chief, director of international relations and more. Outsourcing is an extremely delicate matter for any company and the hazards, potential dangers and pitfalls are many.