Term Paper: Outsourcing IT Services Some History

Pages: 4 (1436 words)  ·  Bibliography Sources: 4  ·  Level: College Senior  ·  Topic: Business  ·  Buy This Paper

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[. . .] (Frank, 2009)

A further challenge to the company deciding to outsource IT services is the loss of its direct management control over the service team. Most large businesses take pride in their philosophies or corporate cultures and it takes a lot of time and careful preparation to transfer these subtle concepts to workers in a different region of the world whose traditions may be in direct conflict with those of the company. (Frank, 2009)

Many offshore outsource devotees have admitted that response times are disappointingly slow. Because these service people are working in another time zone, regular communications are usually reduced to email messages. No matter what time of day is chosen for audio or video conference calls, some parties will be required to attend at an inconvenient time. Another factor is that some foreign workers, although they might be fluent in the English language, may have strong accents that are difficult to understand. Communications challenges often result in delays in completing tasks, inconveniencing employees and failing to meet customer expectations. (Frank, 2009)

Outsource2India provides the following disadvantages that must be considered by any manager considering using an outsourcing service:

Provider will be privy to company's confidential information

Difficult to manage the offshore provider

Create redundancies in the organization

Potential problem if provider goes out of business

Negative reaction on part of unaffected employees in the organization

Provider serve the needs of several companies, lack of full devotion

Lose control over the process that is outsourced

Hidden costs, such as the legal costs incurred while signing and renewing the contract (Outsource2India, 2011)

Offshoring: A win-win game?

McKinsey Global Institute conducted a survey of offshoring in 2003, coming to a counterintuitive conclusion that offshoring is more beneficial to the U.S. than it is to the destination countries. The research managers found that the lower compensation in the target countries resulted in significant savings without a reduction in quality. In the United States, a software developer earns about $60 an hour whereas one in India earns only $6 for that same hour of work. This cost disparity results in an obvious benefit for American businesses moving processes offshore. (McKinsey, 2003)

Not surprisingly, the destination countries enjoy the employment creation and increased investment. The study revealed gains in net benefit of at least 33 cents to the destination country for every "offshored" dollar spent by the U.S. companies. But what about the U.S. McKinsey's analysis showed that the United States has much more to gain. Their report concluded that offshoring will provide macro-economic benefits in several ways: reduced costs which generate savings that can be passed on to customers or investors; new revenues from destination countries for U.S. high-tech products; repatriated earnings from "offshore" companies that have incorporated their business in the United States; and redeployed labor to other jobs which will produce more value for the U.S. economy. (McKinsey recommends that a targeted insurance program for job losers be instituted and paid for with the benefits derived from the offshoring activities.) (McKinsey, 2003)

The McKinsey study is summarized in the following calculations:

Estimated benefit of $1 of spending "offshored"

+ $1.00 previously spent in the U.S., now offshored - .33 value delivered to offshore location = .67 savings delivered to the United States + .46 new value from re-employing U.S. labor = $1.13 economic value to the United States. (McKinsey, 2003)

Final Thought from IBM

Apprehensions regarding the outsourcing of this work are reasonable. It is natural to worry that a business function that is so vital to financial success should not be outsourced. The outsourcing business is doing very well because the service providers realize the importance of such concerns to organizations and have taken on that responsibility. The aim is to ensure that delivery happens on time, on budget and with high quality. (IBM, 2010)

References

Frank, Ryan (August 2009), Suite 101, "Pros and Cons of Outsourcing IT Services," retrieved April 25, 2011 from www.suite101.com/content/pros_and_cons_of_outsourcing_your_it_services_a141393

HP (September 2009), Enterprise Services, "Decades of Innovation," retrieved April 25, 2011 from http://h10134.www.1.hp.com/news/features/5855/

IBM (July 2010), Offshore Outsourcing, "A Cost Effective Business Solution," retrieved April 25, 2011 from http://ibmoutsourcing.com

McKinsey (August 2003), McKinsey Global Institute, "Labor Markets and Offshoring," retrieved April 25, 2011 from www.mckinsey.com/mgi/publications / win_win_game

Outsourcing2India, "The… [END OF PREVIEW]

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Outsourcing IT Services Some History.  (2011, April 28).  Retrieved June 24, 2019, from https://www.essaytown.com/subjects/paper/outsourcing-services-history/4132536

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"Outsourcing IT Services Some History."  Essaytown.com.  April 28, 2011.  Accessed June 24, 2019.
https://www.essaytown.com/subjects/paper/outsourcing-services-history/4132536.