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Making a Decision to Outsource: Strategic Constraints

Making a Decision to Outsource: Strategic Constraints

Many companies are reluctant to dive into outsourcing ocean because of various reasons of strategic nature. As far as strategic goals are touched upon, managers are concerned with the following issues:

- Risks and dangers of transferring too much managerial power to one partner. Companies fear to be too dependent on one offshore partner because its failure to meet commitments will definitely result in large losses for outsourcing company. To reduce such risks companies may diversify them, selecting several offshore vendors for partnering, in addition to thorough geopolitical analysis.

- Danger for senior management to become obsolete. When part of functions is transferred to offshore partner, it usually results in lay-offs. This can become a serious obstacle for companies willing to outsource, as they may face strong opposition from its own personnel and labor unions. In both cases indecisiveness and delays in acting may result in low effectiveness or even unprofitableness of outsourcing.

- Danger of becoming dependent from offshore provider. When considering outsourcing possibility, the companies should assess the consequences of vendor failure. The results of such analysis may vary greatly for different companies. To reduce possible risks of failure to carry out delivery schedules, companies shall work out legally binding agreements with tough conditions and heavy penalties.

- Protection and security of confidential information. Most mature offshore vendors enjoy more impressive security practices than internal ones of the outsourcing companies. However, the risk of commercial data theft or security breach significantly increases when working in international business. Although this issue rarely presents a serious obstacle to making a decision to outsource, it should not be underestimated, the requirements must be documented and the methods and integration with vendors defined.

- Outsourcing results in knowledge transfer to outside party and vendors' personnel training. There is an ever-present pressure to retain functions perspective for outsourcing within the company, even if it means increasing staff and training new personnel. The most common argument is that there is always a possibility of returning functions that have been outsourced back into the company. Companies must carefully assess their business knowledge and determine whether its spreading might compromise companies' practices and hinder achieving strategic goals.

Outsourcing is not just making a decision and enjoying the benefits of it. It is an ongoing process of strategic analysis and vendors' relations management. Company must clearly identify its strategic goals, and decide whether outsourcing part of its functions will be beneficial or it may hinder its strategic development. If you are still not sure what option to choose, 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. This article may be freely reprinted on your websites. We only require that the article and the resource box at the bottom of each article remain unchanged.

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Making a Decision to Outsource: Strategic Constraints

Strategic Planning