After discussing the advantages of outsourcing I will now address the problems involved with outsourcing information systems.
Provider Staff Qualification
The outsourcing firm is sometimes supported by the same staff as they are transferred from the the client firm to the service provider. It is sometimes said that many firms that decide to outsource feel that the lack business knowledge, while the provider sends their most highly qualified workers to achieve new clients. Also, providers prefer to follow specific instructions rather than use their initiative.
Lack of compliance with the contract by the provider
When hiring an agent to carry out a task, their is always the risk that the needs of the firm will not be met and the task will not be carried out in accordance with instructions.
The service provider and the outsourcing firm do not share the same interests. When the costs grow for the firm it is a benefit to the service provider. It is hard for the outsourcing firm to to convey and quantify their exact needs to the service provider. Therefore, if something is to be added that was not in the original contract, then an additional fee will be charged.
Loss of technical knowledge
As the firm does not develop their own IS it will not have the technical knowledge and expertise to maintain the system efficiently and keep up to date with technological breakthroughs.
Many firms tend to underestimate the cost involved in finding a suitable service provider. There is also the transition cost of the time spent by employees helping the vendors. Costs associated with control and ensuring that the vendor doing everything correct. There is also transition costs involved after the outsourcing where another service provider has to be found or the firm may decide to develop it’s IS internally.
The service provider may also deal with competing firms. Therefore, confidentiality is an important aspect when drawing up outsourcing contracts.
Source: Information Systems Outsourcing Reasons and Risks: An Empirical Stud. By Reyes Gonzalez, Jose Gasco, and Juan Llopis