Friday, May 05, 2006

Outsourcing secrets - Part 3

Outsourcing is the purchase of goods or services that were previously provided internally. Generally, it is used for a broad range of information technology functions that are selectively contracted to an external service provider.

For most companies, outsourcing is an interesting option, but they are reluctant to explore this option. Many companies are not even aware of outsourcing possibilities.

The decision to outsource is a difficult one that many executives now face. Outsourcing is a difficult issue. The perceived advantages of outsourcing include better control of costs, accountability and the ability to focus internal resources on more business critical tasks.

There are so many risks involved. If you neglect these risks, your business would terribly suffer. Here are some problems often encountered in outsourcing:

Communication is one of the most crucial issues in outsourcing. It can kill projects and the whole outsourcing relationship. There are various sources of communication problems, such as language barriers, inability to communicate bad news or problems, cultural differences, etc. Misunderstandings and language barriers are also contributing factors to communication problems. When work is outsourced the time spent on communication will increase considerably.

Global team management. When a software development team is dispersed globally, through many time zones, it is often difficult to manage and synchronize teams and pay attention to team and individual needs. Resources and time spent on these activities usually increases.

Cultural fit. Here we have to think of, among others, work ethics, work style and corporate culture as well as more general cultural issues. In some parts of the world 9:00 AM means around 9:00 AM which might not be sufficient enough for our purposes. We also have to consider the fact that weekly, public and religious holidays are at different times in different countries. This can cause quite serious timing problems and even communication breakdown. Cultural differences influence management and work style as well as the way people deal with problems, deadlines and stress.

Security: These days security concerns are paramount which influences off-shore outsourcing. Questions like "Is this a safe country or city?" are asked more often and people expect an elaborate and reassuring answer. These questions also relate to the general business climate and political stability in the country in question. But security could also mean other measures a company is taking or required to take in order to meet certain requirements. On-site access security: security cards are used to access the premises and also for instant personal identification, or the building has 24 hour guard for example. Network and IS security - measures could include hardware and software firewalls, virus protection, power supply, backup and fall back operation, fire control, redundant hardware and software, etc.

Training costs. At our outsourcing partner people often must be trained or re-trained to meet our requirements. It can be cross-cultural, general management, communication training for the top management, technology, process, project management, language training for the technical staff. In case training must be provided it will definitely increase our direct costs and can cause delays and timing problems.

Service level. There is a very real risk that while we are busy relocating our IT operation off-shore our service level at the home ground will drop. Clients are lost, new clients are not acquired because of dropping service level. And news travel fast to the competition. The fear from dropping service level is one of the main reasons why companies have decided not to go off-shore with their IT operation.

Employment. In these days, when unemployment in the IT sector returned to Europe and the US, employment became a very serious domestic and political issue. Social tension is growing against relocating jobs off-shore. The issue is often linked to globalization.

Staff turnover. Influence on staff turnover and other HR issues is very limited. It carries the risk, for instance, that one day a key project manager just leaves the company without any notice, leaving a gap behind which might cause delays and cost increase.

This would place you in a better leverage situation when choosing and transacting with outside service providers. The following problems will quell your fears and help you bravely take advantage of the benefits of outsourcing in the new global economy.

About the author::

Peter Dobler is a 20+ year veteran in the IT business. He is an active Real Estate Investor and a successful Internet business owner. Collect more free software and bonus content for your own web site at

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