How IT Outsourcing Benefits Outrun Underlying Risks

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Information Technology industry continues to remain reliant on outsourcing services to critically enhance profit-lines of big players. The past 20-odd years of moving jobs to South East Asian time-zones like India, by Western businesses stands testimony to the innovative business model.

Outsourcing which began as an experiment in the late 1990s by US time-located businesses to take advantage of captive IT – educated workforce in India has proved beneficial.  The large Indian engineering community delivered quality services, in quick turnaround time, at nearly one-fourth the hourly wages of North America or Europe-based workers. Currently this industry is one of the greatest revenue-generators for IT firms and is valued at $100 Billion and more, across various sectors such as BPO, healthcare, LPO and others.

However, third party outsourcing of services do have certain set-backs.

Outsourcing is Standard Practice

The onset of outsourcing as the default standard in the IT industry has meant most business moves towards these services sooner or later. Therefore, when your business begins to evaluate IT outsourcing models, weighing the risks against benefits becomes essential.

What are the benefits?

Outsourcing offers 4 direct benefits:

a)      Lowers current costs: Outsourcing IT process means the overall costs of operations is lowered drastically. There are no capital outlay tensions, costs for IT services become varied as against fixed costs of in-house IT teams. The availability of capital, because of outsourcing, allows businesses to focus on core business investments, besides the visible cash availability lures investors, shareholders.

b)     Lowers expenses: Typically the costs of every internal process are passed on to the customer. By outsourcing services, most process costs are absorbed by the provider. This allows enterprises to offer competitive rates to customers.

c)      Increase core operations: The outsourcing business model allows managers to focus on the core goals of the enterprise, bringing in value-addition (added).

d)     Increase Business size: The direct impact of outsourcing is an overall increase in the growth momentum of the company. This could be in the form of portfolio-expansion, diversified services or goal redefinition due to higher efficiency, cost-effectiveness and capital retention that outsourcing offers.

What are the risks?

The three risks that outsourcing is associated it with are:

a)     Downtime Constraints: The immediate effect of outsourcing on any business is loss of productivity during downtime. This is likely to happen when the infrastructure is ill-maintained. Another major issue is that of system failure. Therefore, your resources are likely to remain idle, while the provider overcomes the technical issues. The time factor could take from a few hours to several days.

b)    Limited hands-on involvement: Third party involvement can prove to be restrictive as hands-on experience in running the process is limited across the executive level.

c)    Security: The most vulnerable risk is that of security for your processes. Though security protocols remain cutting-edge, not every process is impregnable. Therefore, security levels running on the outsourced processes have to be evaluated.

Benefits Vs Risks

In comparing the risks and benefits of outsourcing IT services, the benefits far outrun the risks. While the risks are inherent to every process model, whether in-house or outsourced, the risks in third party instances are higher. However, running higher, more efficient and sophisticated security control measures could offer a solution to stem the risks.

Benefits OUTRUN Risks

The momentum towards outsourcing remains two decades later, with several small and mid-sized outfits now offering specialized core services to larger players. According to 2015 statistical data, IT Outsourcing is valued at $88.9 Billion; with explosive forecasts of IT healthcare outsourcing set to increase to $50.4 billion by 2018. 

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