Page 473 - Using MIS

Q3 What Are the Advantages and Disadvantages of Outsourcing? 441

solution, as the arrow in Figure 11-5 implies, the vendor provides hardware, software, data, and
some procedures. The company need provide only employee and work information; the payroll
outsource vendor does the rest.
Finally, some organizations choose to outsource an entire business function. For years,
many companies have outsourced to travel agencies the function of arranging for employee
travel. Some of these outsource vendors even operate offices within the company facilities. Such
agreements are much broader than outsourcing IS, but information systems are key compo-
nents of the applications that are outsourced.

What Are the Risks of Outsourcing?

With so many advantages of outsourcing and so many different outsourcing alternatives, you
might wonder why any company has in-house IS/IT functions. In fact, outsourcing presents
significant risks, as listed in Figure 11-6.

Loss of Control

The first risk of outsourcing is a loss of control. For PRIDE, once James contracts with Ajit, Ajit is
in control. At least for several weeks or months. If he makes PRIDE a priority project and devotes
Not everyone agrees on the his attention and that of his employees as needed, all can work out well. On the other hand, if
desirability of outsourcing.
For potential pitfalls, read the he obtains a larger, more lucrative contract soon after he starts PRIDE, schedule and quality
example in the Guide on pages problems can develop. Neither Jared nor James has any control over this eventuality. If they pay
448–449. at the end, they may not lose money, but they can lose time.
For service-oriented outsourcing, say the outsourcing of IT infrastructure, the vendor is in
the driver’s seat. Each outsource vendor has methods and procedures for its service. The orga-
nization and its employees will have to conform to those procedures. For example, a hardware
infrastructure vendor will have standard forms and procedures for requesting a computer, for
recording and processing a computer problem, or for providing routine maintenance on com-
puters. Once the vendor is in charge, employees must conform.
When outsourcing the cafeteria, employees have only those food choices that the vendor
provides. Similarly, when obtaining computer hardware and services, the employees will need
to take what the vendor supports. Employees who want equipment that is not on the vendor’s
list will be out of luck.
Unless the contract requires otherwise, the outsource vendor can choose the technology
that it wants to implement. If the vendor, for some reason, is slow to pick up on a significant new

• Loss of control ? ? ?
– Vendor in driver’s seat. " Who ? " " What ? "
– Technology direction. " Where ? " " How ? "
– Potential loss of intellectual capital.
– Product fixes, enhancements in wrong priority.
– Vendor management, direction, or identity changes.
– CIO superfluous?
Outsourcing
Costs
• Benefits outweighed by long-term costs
– High unit cost, forever. Benefits
– Paying for someone else’s mismanagement.
– In time, outsource vendor is de facto sole source.
– May not get what you pay for but don’t know it. Outsourcing
Where's
• No easy exit the EXIT ?
– Critical knowledge in minds of vendors, not employees.
Figure 11-6 – Expensive and risky to change vendors.
Outsourcing Risks