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Intetics Co./ Web Space Station Articles Archive, April 2005
http://www.webspacestation.com/it-outsourcing-news/articles/outsourcing.html

Outsourcing IT Development: Advantages and Disadvantages

By Basil Tesler

You can outsource almost anything. Maybe you don't know it yet, but it's true. A couple of days ago, when I was drinking coffee in the kitchen, my wife pointed at the faucet that was leaking big time. The good ole faucet was there when we moved in about ten years ago, and trying to fix it again didn't make sense any more. Since I religiously believe in DIY, I bought a new faucet and set about working. When the old faucet was gone, I found out the metal pipe under the sink had to be replaced, too. There was no way I could do it without recourse to welding. I realized I was ready to outsource that part of the project, so I called the plumber.

IT development outsourcing isn't much different than any other kind of outsourcing. When you face an insistent need to start a new IT development project, you have to weigh your current in-house capacity first. If your experience and budget allow you to cope with the task without resorting to any outside expertise, you should probably take full advantage of your potential and do it yourself. However, if there's danger that you'll bite off more than you can chew, it's about time to consider the advantages and disadvantages of outsourcing.

Advantages

Basically, outsource service providers offer you higher quality services at a lower cost. This makes the advantages of IT development outsourcing obvious, so let's have a look at just a few of them.

Outsourcing IT development is a most effective way to stretch your budget. When managers plan IT development outsourcing, they usually make it their aim to cut down the company's expenditures by 30%. This is a figure that speaks for itself. Of course, there's always the risk of failure, but if you outsource prudently, you'll afford to implement projects of such a scale that would be impossible for you to reach on your own.

If you need to have state-of-the-art IT solutions worked out and innovations implemented with small losses, outsourcing may be the only way out. It will save you from the nightmare of retraining your employees (or even hiring new ones) and/or paying for re-equipment.

Cutting your costs and upgrading the quality of the services you offer will allow you to expand the competitive capacity of your business. I suppose the state the IT market is in today makes this simple argument a crucial one.

When you outsource IT development to an outside company, you can concentrate on your core activities. You won't be able to completely forget all about the project or its part that you have chosen to outsource as soon as you sign a contract with an outsource service provider, but you won't have to get scattered, either.

If you deal with an experienced and highly qualified vendor, you'll be able to gain valuable expertise in support of your IT capacity. Almost any vendor will surely try to set a dependency trap for you, but it doesn't mean you have to acquire the dependency pattern instead of learning everything you can derive from the vendor's expertise.

Disadvantages

So, you have finally decided in favor of outsourcing. Will it automatically make you wealthy and happy? This is far from true. Various studies show that 20% to 35% of IT outsourcing contracts are not revived after they expire. Needless to say that most customers in these cases are not satisfied with the quality and/or price of the services. Outsourcing as a nightmare was eloquently illustrated by Beth Cohen, president of Luth Computer Specialists, Inc., "There was a company in Dayton that decided to outsource much of its IT and production to a foreign company about five years ago. After about nine months of outsourcing, the company realized that there was a huge loss in quality for both production and IT support. The company decided to cancel the contract and rehire their old employees. They ended up getting most of their old employees back but at a higher wage than before. Most people would think that the story ends there. However, as hard as it is to believe, the company is actually considering outsourcing again. They think it will be different this time. It will be interesting to see what happens."

Forewarned is forearmed. This is why I suggest we discuss the pitfalls expecting a business that puts out to the sea of outsourcing.

You will lose control over the project or at least over the part that you have chosen to outsource. This is the problem that frightens almost any manager who has little or no experience in outsourcing. This is the challenge any business involved in outsourcing faces. This is the risk you have to take. It is inevitable that outsource service providers should take control - at least in part - over outsourcing projects. However, they are not supposed to abuse the confidence reposed in them by their customers. In order to minimize the risk, you have to be extremely careful studying the background of your potential vendor. Once you decide in favor of this or that company and begin negotiating the contract, you should try to make the whole process of the project implementation as transparent for you as it is possible.

It's usually difficult to avoid the inherent problems of communication.

An outsource service provider might be trying to diversify the business so zealously that achieving progress in one particular area becomes questionable. The solution to this problem lies in the company's portfolio. Examine the relevant case studies and success stories, ask the vendor for references, and, if you are still uncertain, do not hesitate to check these references.

Some vendors advertise services and even take up projects having little or no experience in the corresponding areas. Apparently, they intend to farm out at least some parts of such projects to subcontractors - which certainly doesn't look very attractive to the customer. This problem resembles the previous one, and the recommended solution is the same.

Almost all outsource service providers place the highest emphasis on the most advantageous projects. It's only natural, but it surely doesn't make the life of the customers with lower profit potential easy. In order not to become a neglected customer, you should:

Most vendors try to accumulate as many projects as they can. It's also easy to understand. However, the burden might appear to be beyond the vendor's strength, and this will most likely wreck the project schedule, if not the whole project. If you don't want it to happen to you, you can:

An unscrupulous vendor may be simply unqualified for the project that an imprudent customer have chosen to outsource. One of the ways to solve this problem is to focus your attention on the expertise of your potential outsource service provider at the selection stage.

A number of problems may arise due to the incompetence of a customer who is a novice in outsourcing. That's right, you don't have to think that an outsource service provider is the root of all evil. Incompetent customers tend to make modifications in standards and procedures that have been long established. A vendor who knows that the customer is always right tries to implement the project the way the customer wants it, which finally leads to a total mess-up. In order to avoid this kind of situation, try to find out as much as you can about IT development outsourcing from your contacts andů from articles like this.

Conclusion

Will outsourcing IT development really profit your business? Uh, maybe yes, or maybe no. In other words, it depends.

If you don't possess in-house expertise and/or budget necessary to implement a vital IT development project, outsourcing it - in full or in part - to an outside company seems to be the best solution you can find.

However, you should be discreet selecting the vendor, examining the vendor's expertise, negotiating the contract, and monitoring the project implementation. In this case, outsourcing IT development will be rewarding, and the return on investment might be the greatest you have ever had.

Then again, if you are not cautious and thorough enough, you might end up paying through the nose for much worse service than you expected to get. This is what I'm thinking of right now, when the plumber's bill is laying before me.

 
 
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