Outsourcing- Cost Cutting or Business Partnership ?

Published by MBA Skool Team, Published on September 11, 2011

Outsourcing IT operations is primarily seen as a tool to reduce cost especially during recession. But outsourcing should never be seen solely as a means of reducing costs. The decision to outsource should fit in the broader corporate strategy. The organization should be clear about what is critical to the success of the business. Organizations should be clear why are they going for outsourcing. Many organizations go for outsourcing without any consistent and clear idea.

Outsourcing - Cost Cutting or Business Partnership ?

Outsourcing allows management to concentrate on company’s core business. It allows companies to access people with specialist IT skills which are not available in house. For example an FMCG company like HUL may find it difficult to attract skilled IT people as compared to Technology Company like IBM. Companies should do outsourcing to improve their business rather than cut short-term costs.

A business cannot outsource its problems. If a business tries to outsource to fix a broken business process, then it is bound to fail. Before IT outsourcing decision is taken, due diligence of the potential partner need to be carried out. Vendor’s expertise, its financial security, its ability to deliver, prior experience in handling similar projects are some of the parameters which can be looked at before selecting an IT vendor. It also should have a degree of flexibility and should adapt to outsourcing company’s culture. The company should be looking for a long-term relationship with the IT service providers.

A business should never outsource its core competency. In order to maintain that competitive advantage, businesses are now laser focused on core business functions. A recent trend has seen many companies looking for one stop for all its IT needs. Three recent transactions – HP buys EDS, Dell buys Perot Systems, and Xerox purchases ACS – point to a future where “one-stop shopping” indeed becomes a reality in the outsourcing market. A business person doesn’t care whether she’s using an IBM, HP, Dell, or Lenovo machine he just wants to make sure his order-to-cash, procure-to-pay, hire-to-retire etc. works to perfection.  The future could be assimilation of hardware and software services.

Another trend seen in the outsourcing space is how companies are subscribing to IT and BP services. They are seen similar to how to currently receive gas, water and electricity services. Yes, it is cloud computing. More and more companies are pushing their capital intensive investments into the cloud. Cloud computing creates a new space for Indian service providers to offer innovative cloud based services and solutions. As cloud computing is gaining traction, there is an opportunity in space of cloud migration. Outsourced IT organizations will concentrate on automating very specific migrations and become the experts in those types of migrations. IT companies can focus on migration offering services and automated software to make sure the migration is smooth and painless. Legacy software applications will need to be redesigned to run on the cloud environment. This will increase software development and outsourcing will experience a boom.

As IT industry matures with more and more offerings, the outsourcing company and IT service provider will have to work like partners owing the responsibility of the operations.


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