IT Outsourcing: to Be or Not to Be?
Hundreds and thousands of companies outsource software development and other IT functions to external parties every day. The total amount spent on IT outsourcing in 2014 amounted to $442bn, which is 7% more than in the previous year. The main reasons for continued growth remain cost reduction and lack of own resources. But still there are lots of companies that are not ready to take risks of outsourcing abroad. A fear of undue expectations stops companies from taking advantage of outsourcing. Is there a way to avoid the disappointment?
As every other process, IT outsourcing has its pros and cons. So let’s make it clear and find out what winnings and threats accompany a decision to outsource.
Advantages You Want to Take
1. Reduced Costs
That motivates companies to outsource abroad more than anything else. It is much cheaper than using local talents and it helps to place the heavy weight of taxes and benefits on the contractor doing the IT work. There is no need to care about wide range of employee support activities and the cost of everything from health insurance to office space is reduced.
2. Increased Efficiency
The outsourced vendors are professionals in their field. They also have specific equipment and technical expertise. As the result, the tasks can be completed faster, with better quality output and more effectively. The most significant thing is a wide access to international standard professionals, as geographical boundaries are not a problem anymore.
3. Reduce Risk While Migrating to New Technology
You can migrate to new technologies with minimum costs and downtime, but with increased productivity and quality by outsourcing IT processes. Professional outsourced IT providers work with multiple clients and need to keep up on industry best practices, they typically know what is right and what is not. This kind of knowledge and experience dramatically reduces your risk of implementing a costly wrong decision.
4. Concentrating on Core Process
Outsourcing of the supporting processes gives the organization more time to strengthen their core business process. IT outsourcing relieve a company from wasting limited time and resources on non-core activities.
5. Rapid Scale and No Issues with Human Resources.
When a company receives a large order from a new customer, business needs to scale its productive capabilities rapidly. Outsourcing lets you access qualified people without need to hire additional full-time employees. Moreover, by having a contractual relationship, you can avoid searching, interviewing and teaching new employee for a project or replacing and firing them after the project is over. And no personal feelings get in the way.
Pretty motivating, isn’t it? But why we hear so many stories when people get from IT outsourcing not what they have been expected? Do they pay attention to difficulties they could face? Is it possible to avoid that lamentable experience?
Disadvantages You Better Consider
1. Leakage of confidential information
With outsourcing you give a third party complete access to your company information. There is a risk that the valuable data can be copied and later used or sold.
How to deal. Every reliable and respecting IT outsourcing company will offer its clients to sign a non-disclosure agreement (NDA) to ensure them in protection from disclosure. The next step should be a state in contract that all rights of source code along with a product go to the customer.
And the simplest way to find out whether you can trust a vendor is to ask for direct contacts of his clients. Recommendations and feedbacks at first hand can give you understanding who you are dealing with: reliable partner for your business or one more ‘money-hoover’.
2. Difficulty of quality control
If you outsource without testing the people or companies you can encounter low quality work.
How to deal. It’s important to have some sort of quality control system put in place to insure that the work you’re receiving from your contractors is of a high standard. Or at least make sure that the vendor has proved himself to his customers as a professional. If there are products that were developed by the company in open access, familiarize yourself with them and ask professionals to estimate.
3. Hidden Costs
While businesses choose outsourcing to save costs and improve IT quality, they risk getting an unexpected bill resulting from hidden fees (phone consultations, extra services, drag of the project).
How to deal. First of all, ask for previous customer references and check if the vendor has shown fairness and transparency in the financial dealings with them. Secondly, use performance reporting and tracking products (e.g. JIRA) to control time of outsource developers you are paying for. Warn your vendor that you will cancel the outsourcing contract if you find their financial dealings are unfair.
4) Ethical and cultural differences
It is important that your vendor follows the similar standards of work ethics and culture. It makes interaction easy and clear. Very often when outsourcing abroad to a country with different culture, company faces big problems with communication. The standards of doing business can diverge, which can lead to disappointments and undue expectations.
How to deal. To understand whether you would be satisfied with approach and communication process of your outsourcing vendor, learn more about peculiarities of doing business in his country. And to minimize bad influence of communication difficulties, you outsource to the countries with the culture similar to yours.
Summarizing everything said before, IT Outsourcing can become one of the best discoveries for your business this year. However, not paying attention to the possible threats and doing nothing to avoid them will create one more sad story about money and time spent in vain.
Wish you luck with your decisions!
By Anna Muzychko