The topic of outsourcing in the business world has become a subject of substantial debate. This study will examine the outsourcing practice within the context of several scenarios with the goal of enabling a deeper understanding of the positive and detrimental elements of the method. Alongside the ability to assess relevant data will be the foundation upon which to build future decisions.
Within the realm of outsourcing, the practice of utilizing an external service provider for data carries a fundamental risk that must be addressed (Earl 1996). Within the modern technology driven world the ability to entrust a separate company with vital information and data has the inherent potential to cause a tremendous amount of harm. The initial risk in this particular practice lies in the loss of the database itself (Earl 1996). If the company entrusted with database collapses, the information contained within the construct will also fail. This can be a devastating setback to many companies, both large and small.
A savvy risk mitigation policy in this case would be the backing up and alternate location of the associated files (Kern, Willcocks and Lacity 2002). Although this may seem like a simple and straightforward precaution, the sheer volume of the data in some companies makes this strategy onerous in some cases. An alternative to the complete backup mitigation strategy would be the separate preservation of the most vital files, in order to maintain the company during a period of crises (Kern, Willcocks, and Lacity 2002).
A secondary scenario that is common in the emerging business world that carries and substantial portion of risk resides in the practice of utilizing an enterprise service provider for critical functions that may include payroll, sales or human resources. This practice holds various risks with the primary concern resting in the assertion of employee control with no intrinsic understanding of the functions performed (Earl 1996). Many times a function that an employee performs may seem mundane or less than what it is to the business on paper. This fact can easily translate into personnel decisions that may seem to be financially effective, yet, in the long term only serve to increase the overall cost (Earl 1996). Lacking a system that is credibly in touch with the base needs of the underlying business, there is a substantial potential for costly error.
A practical mitigation policy that will enable a clear perception of management control rests with final oversight on all decisions (Lacity, Khan and Willcocks 2013). Maintaining the final veto or implementation power in-house will ensure that there are no major changes that are not prepared for. The ability to effectively achieve the best results from the outsourcing practice has continuously been proven to be in the production of quality results (Lacity, Khan and Willcocks 2013).
Alongside the continuous stream of innovation and technology has come the risk and reward of employing a vendor to support a company’s desktop computers. This has the very basic risk factor of allowing this company complete access to every level of data, creating security concerns (Earl 1996). With modern competition reaching fierce levels, the ability for a company to keep its data secure is often the difference between success and failure. Not only can a remote vendor have the potential to allow remote access, the same individual has the inherent capacity to lock the company themselves out of their own data base (Earl 1996). This concern is a reflection of the often brutal methods that are employed by business world.
Risk mitigation in the case of desktop service can be alleviated through the simple practice of employing two separate companies (Bahli and Rivard 2003). Utilizing a separation of service protocol, both with limited but not full access, there is a reduction in critical risk factors. This method will entail a measure of technological knowledge on the part of the in house staff in order to maintain data at the highest level.
Similar in concept to the last scenario the use of a vendor to support a company’s infrastructure mainframe and network services carries a substantial amount of risk. Security concerns aside, the effectiveness of the vendor at maintaining a functioning network can often mean the difference between a productive day in the office and a futile day spent waiting (Earl 1996). This is a reality that is a reflection of the modern need to connect to the internet and the world in order to make the most of every opportunity. Lacking a professional or adequate vendor support service can cripple a company or leave it well behind in the very competitive world (Earl 1996).
The risk management alleviation concept here is redundancy and multiple contractors (Bahli and Rivard 2003). Allowing the knowledge that there is more than one service provider available at a moment’s notice will ensure that both companies work hard to provide the latest and best mechanisms for continued service. The presence of an in house management with the experience to understand the needs of the IT community provides a fundamental place upon which to build risk mitigation possibilities.
This study has examined the practice of outsourcing by illustrating many of the risks and accompanying methods of alleviation. A consistent factor in each scenario has been the presence of an informed leadership with the capacity to apply credible oversight to the outsourced activities. In the end, outsourcing has the potential to increase revenue, yet, there is sustained need to maintain a level of control over each element of a business.
Bahli, B. and Rivard, S. (2003). The information technology outsourcing risk: a transaction cost and agency theory‐based perspective. Journal of Information Technology, 18 (3), pp. 211-221.
Earl, M. (1996). The Risks of Outsourcing IT. MIT Sloan management Review, 1 (1), pp. 1-5.
Kern, T., Willcocks, L. and Lacity, M. (2002). APPLICATION SERVICE PROVISION: RISK ASSESSMENT AND MITIGATION1. Quarterly Executive, 1 (2), pp. 1-5.
Lacity, M., Khan, S. and Willcocks, L. (2013). A review of the IT outsourcing literature: Insights for practice. The Journal of Strategic Information Systems, 18 (3), pp. 130-146.