Problems with Outsourcing

21 Feb

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.

Dependence

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.

Hidden Costs

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.

Security

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

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4 Responses to “Problems with Outsourcing”

  1. sad111413042 March 8, 2013 at 12:16 pm #

    I never realised how many problems are associated with outsourcing, from what articles I have read on the subject I always thought it was the best option. Glad somebody is giving us a honest opinion on it!! I take it you are against outsourcing yourself?

  2. sad111302881 March 8, 2013 at 5:34 pm #

    Like sad111413042 I did not know outsourcing was so troublesome, in today’s world it is normal business practise but your research goes to prove that too much time and money is wasted outsourcing goods and services that could be developed in- house

  3. sad109566511 March 8, 2013 at 7:50 pm #

    I agree with the above comments and i also never knew that there were so many problems involved with outsourcing,this gives everyone an honest insight into it and will be very helpful to help understand and use for studying in April

    • sad111510567 March 9, 2013 at 1:02 pm #

      Thank you for your comments. When i began to research the topic, it became clear that there are indeed a lot of problems with out-sourcing. However, out-sourcing does suit some companies. I think a lot of it depends on the operations within the business

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