Pros and Cons of Outsourcing IT: The Truth Revealed

In the business environment where we live today, IT outsourcing has developed rapidly as a management practice used by firms to improve efficiency and reduce costs. The rationale behind this is that companies will essentially be able to concentrate on their core competencies while at the same time benefiting from external expertise.

As with any strategic action, there are always pros and cons of outsourcing IT to be considered in making decisions.

The objective of this guide is to give you a balanced view on the pros and cons of outsourcing IT, so that you can make your own decisions.

So, without further ado, let’s get started!

What is IT Outsourcing?

IT outsourcing refers to hiring third-party service providers for the purpose of handling IT-enabled business processes, application services, and infrastructure solutions. Firms opt for IT outsourcing to lower costs, gain access to specialised skills and resources, and augment flexibility.

Based on the location of vendors, there are three types of IT outsourcing:

• Offshore Outsourcing: Engaging vendors from far-off countries, usually to save costs or avail skills not available in the home country. 
• Nearshore Outsourcing: Engaging service providers from neighboring countries, as a middle path between cost arbitrage and no cultural / time zone difference.
• Onshore Outsourcing: Contracting vendors within the same country, ensuring seamless communication and better alignment with business operations.

Now that we have understood what IT outsourcing is, let us move forward to the Pros and Cons of Outsourcing IT —

Pros of IT Outsourcing

Some of the benefits of outsourcing IT services are:

• Cost savings: The most apparent attribute for the company is the cut down on costs. We all know that maintaining an in-house IT sector can be a costly affair. You do not only need to pay for their benefits, holiday pays, sick pays, etc, but also invest heavily in the required equipment and software.
• Access to Global Talent Pool: Outsourcing gives you access to a large pool of talented and skilled IT professionals across the globe. You can easily find expert IT professionals locally or offshore as per your requirements, and it helps you improve the quality and efficiency of your IT services.
• Focus on Core Business Functions: Handing over the day-to-day running of your IT to an external provider allows internal teams to put all their focus on strategic projects that will help grow your business, benefiting productivity and innovation.
• Scalability and Flexibility: Outsourcing allows you to ramp up or downsize your team depending on your business needs. It gives you the flexibility to be more agile in responding to market changes, as well as freedom from the commitment of long-term investments.
• Risk Management: Mitigate risk by working with IT outsourcing companies that have proven expertise. A majority of these service providers are required to meet a minimum set of security protocols and compliance, thus your IT is exposed to the same practice in the industry.

Cons of IT Outsourcing

With all the benefits, it also brings a number of challenges:

• Loss of Control: There is a perception that when you are outsourcing your IT work, you have given up control over both the process and the result. You will need to put in extra effort to get the vendor’s processes aligned with your company culture and goals.
• Security and Confidentiality Risks: Whenever you transfer sensitive data to another party (including when such transfer is effected by a Vendor), it involves a risk. You can only require protection measures corresponding with the policy of the other contractual party or parties, which may in particular not meet your requirements as the contracting entity.
• Communication Barriers: Differences in time zones, languages, and cultures can pose as communication barriers. These barriers can result in misunderstandings and delays in the completion of tasks.
• Quality Control Issues: If there is a significant difference in work standards and processes between your company and the service provider, you might get variable quality. You may have to really sweat it out to manage/monitor/control the outsourced work for desired results.
• Hidden Costs: Outsourcing is supposed to be a cost-saving measure, but sometimes it isn’t. Additional costs can include fees or expenses related to any contract work and re-work, as well as the transition costs of repatriating services if the outsourcing deal doesn’t work out as expected.

Factors to Consider Before Outsourcing

Now that you have learned all the pros and cons of outsourcing IT, make sure you consider a number of factors first before you decide to outsource,:

Nature of the Task

First and foremost, you need to establish whether or not the IT function is core to your business. If it is non-core, you can outsource it and release your team to focus on more strategic issues. If it is core, however, you will need that expertise in-house.

Vendor Selection

Check the reputation, expertise and reliability of the vendor. You should make thorough due diligence to assure that your outsourcing partner corresponds with the company’s vision as well as the required quality.

Cost-Benefit Analysis

Conduct a thorough analysis to compare potential savings with potential risks and hidden costs. This will help you decide whether outsourcing will benefit or harm your organization overall.

Legal and Compliance Issues

Ensure the vendor is compliant with necessary regulations, and that industry standards are adhered to. This is especially important when dealing with sensitive data – noncompliance could cause legal issues and severely damage your reputation.

Conclusion

There are various sets of pros and cons of outsourcing IT. It’s important to take it seriously as outsourcing decisions can make or mar your business operations. 

By using the defined framework we discussed, by understanding advantages and disadvantages of outsourcing, and by considering task nature, vendor selection, cost consideration, and compliance requirements, you can make rational decisions that are fully aligned with your strategic plan. 

Broadly speaking, IT outsourcing helps improve efficiency, cut costs and provides access to expert skills; whereas if not done properly, it could pose a risk in a different form.