Introduction to outsourcing
Outsourcing is a business approach whereby an organization recruits a third party to carry out tasks. In systems development, outsourcing refers to hiring other vendors or organizations to design, develop, and maintain software applications or IT systems. The external organization, referred to as the service provider or third-party provider, organizes its workforce or computer systems to carry out tasks or services at the hiring company’s premises or other sites.
Reasons to consider outsourcing
The decision to outsource can be related to various reasons: to reduce expenses, enhance operational effectiveness, and achieve greater efficiency. Companies who opt for outsourcing depend on third-party suppliers’ specialized knowledge and skills to carry out the delegated duties to reap the associated advantages. The fundamental concept is that the third-party supplier specializing in that specific work can execute it with superior efficiency, speed, and cost-effectiveness compared to the hiring organization (Lahiri et al., 2022). Due to the advantages involved, organizations frequently delegate supporting services to external parties. This allows them to concentrate their resources on their primary areas of expertise, enabling them to get a competitive edge in the market.
Nevertheless, there are other reasons to outsource, such as when the organization cannot recruit and employ in-house, full-time staff members possessing the specific expertise and experience required to carry out particular tasks. Companies occasionally outsource to transfer the responsibility of completing regulatory requirements or duties to a third-party provider (Gambal et al., 2022). Moreover, organizations may seek outsourcing providers as hubs of innovation.
Conditions when outsourcing may be beneficial to the organization
Outsourcing may be beneficial to the organization when the organization has clear objectives and requirements. When the organization has clearly defined objectives and requirements for the project, outsourcing can help streamline development efforts and ensure alignment with business goals (Lahiri et al., 2022). Besides, outsourcing may also be beneficial when the organization has a well-established communication channel and risk management strategies. Communication is at the core of the success of outsourcing; thus need for a clear and solid communication channel to be beneficial to the organization’s outsourcing plans (Lahiri et al., 2022). However, with the right risk management strategies, the organization could effectively address communication barriers and other risks that may arise in outsourcing.
Reasons to approve outsourcing
Outsourcing would be approved for an organization for various reasons such as scaling staff, cost reduction, talent pool, access to specialized expertise, and focus on core business goals. The addition of new personnel, particularly in information technology, presents difficulties largely related to time and financial resources (Gambal et al., 2022). However, highly skilled IT professionals are promptly incorporated into projects and essential assignments with outsourcing. The staff is also adaptable, allowing an organization to hire as many or as few individuals as required (Gambal et al., 2022). Upon project completion, it is possible to downsize the workforce. This kind of flexibility provides unparalleled authority over project management without investing significant effort in recruiting and training additional staff members.
Additionally, outsourcing plays a crucial role in reducing costs as it allows the business to take advantage of temporary employees and save on expenses related to recruitment and training. In addition, a Managed Service Provider (MSP) can offer IT infrastructure using virtualized services or comparable alternatives, instead of a company having to create the infrastructure independently (Lahiri et al., 2022). These advantages, including enhanced efficiency and heightened security, contribute to a company’s financial performance and enable it to maintain competitiveness in information technology, even in the absence of local resources.
Reasons to reject outsourcing
An obstacle that frequently hinders investment in outsourcing is the loss of control. When a company utilizes third-party services, it delegates its core functions to a separate staff entity. Some individuals feel uneasy about entrusting a secondary business with the responsibility of handling their security or essential operations (Gambal et al., 2022). It is plausible that a secondary Managed Service Provider (MSP) may not uphold the same level of standards as a corporation would in managing these activities. Other drawbacks of outsourcing encompass challenges in communication, heightened security risks including the exposure of sensitive data, and added regulatory obligations (Lahiri et al., 2022). At a more general level, outsourcing can cause disruptions to a workforce.
References
Gambal, M. J., Asatiani, A., & Kotlarsky, J. (2022). Strategic innovation through outsourcing–A theoretical review. The Journal of Strategic Information Systems, 31(2), 101718.
Lahiri, S., Karna, A., Kalubandi, S. C., & Edacherian, S. (2022). Performance implications of outsourcing: A meta-analysis. Journal of Business Research, 139, 1303-1316.
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