Making a Decision to Outsource: Driving Factors

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Most executives view offshore outsourcing most of all as a source of cost reducing. The greatest savings are expected to come from lower labor cost and reduced project timelines. However offshore outsourcing also creates new challenges and expenses for the organization involved. Those may include vendor selection costs, legal costs, costs of transition and many others. That is why despite the evidence of possible major up-front cost savings many outsourcing vendors have yet to prove that they are able to provide positive ROI in a complex project.

Yet businesses have to perform deep analysis of its strategic program and goals before making a strategic decision to outsource part of their activities. The main driving factors are as follows:

Lack of special expertise/knowledge. This is probably one of the most important factors that force companies to outsource. Many projects require technical expertise that is not present within the company. Moreover, very often the company can not hire employees with required expertise, or it is not reasonable to employ them full-time. As Outsourcing Institute has suggested "outsourcing is a clever alternative to hiring".

Floating demand for personnel. Often a company that engages itself into a large project is reluctant to search for new skilled employees, because it estimates that upon its completion it will be forced to discharge them (say, in a year or two). It is wise in such case to outsource part of the project to an offshore vendor acquiring also the possibility to reduce costs.

High risk level. Companies working in high risk spheres often prefer to reduce them by finding an offshore vendor with advanced expertise in the same domain. Also it is not reasonable to shift all responsibility to outsourcing partner, attracting mature specialists with needed skills and technical knowledge in most cases allows reducing risks.

Process management perfection. Outsourcing vendors earn their profits in many respects because they have standardized their internal processes. Take the example of software developers who integrated Capability Maturity Model raising their processes from ad hoc, chaotic level to mature, disciplined software processes. Partnering with such mature organization may allow for transfer of best practices across project boundaries, thus providing some standardization for the outsourcing organization as well.

Reduction of time spending on management. Transferring secondary functions and processes to outsourcing vendor will allow management of the company to concentrate on core processes and projects that have maximum priority.

Achieving objectivity. Often companies fall into the trap of inertness of its workers. The reason is that people minds can not manage with rapid technological changes and employees are reluctant to refuse "old approved techniques and methods" thus being not able to find and apply optimal solutions. Internal obstacles may delay or even block new initiatives. That is why it is worth recruiting independent expert company that will suggest the most appropriate solution for particular business needs.

The company shall clearly recognize all possible reasons for outsourcing and rank their priority. A coordinated approach of management must be formed, in other case valuable time and resources may be spent on finding a vendor whose effectiveness will not satisfy one of the managers. As practical experience shows main reasons for resorting to outsourcing are:

- increasing the overall company effectiveness;
- expanding technological advantages and manufacturing capabilities;
- cutting managerial costs;
- improving technical support and customer service;
- concentration on core activities;
- lack of qualified personnel;
- etc.

Probably the most important point to keep in mind while making decision whether to outsource or not is that outsourcing is not the means to solve all company's problems. All problems arising within the company require careful examination. If their cause is badly defined strategic aims, outsourcing is likely to worsen the situation, not improve it. If a company does not realize its needs, it will neither be able to explain them to exterior vendor nor gain success.

Will outsourcing be really profitable for your business? It depends. In first place it depends on you and how much effort you put into pre-outsourcing preparation and analysis. We hope that this article will help you to identify your needs and acquire more clear vision of possible reasons for outsourcing. If you are still not sure and hesitating, you may contact us, and our analysts will definitely help you.

Denis Syropushchinsky is a Marketing Manager in Qulix Systems - Offshore Outsourcing Software Development Company, located in Minsk, Belarus, Eastern Europe. Our client-oriented approach and effective offshore software development services are the things that will help you to achieve your business goals. If you have further questions about offshore outsourcing, please contact us.

Copyright 2005 Denis Syropushchinsky. All rights reserved.

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