IT Vendor Services

F lendor Services 199 Learing Outcome

Outsourcing

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By the end of this chapter you should be able to： ■ Discuss the concept of outsourcing and in-sourcing

■ Define managed services and discuss how and where these services can be used

■ Discuss third party systems/servers and list the advantages of their usage in banks

Globalization has augmented the level of competition to a great extent. Organizations need to be highly flexible and immediately responsive to customer and market demands. Businesses need a new set of competencies to remain competitive. However, these capabilities cannot be acquired cost- effectively in traditional ways. There is a need to go beyond and leverage alternative solution deployment and service delivery models and operate according to a network-based business model. However, there is no single right model. Each business is different and unique and so are its capability needs. Each business needs to have its own model, but this is not always easy to achieve. There are many threats along the way, and businesses need to ensure that they do not ignore the risks in order to be successful. The most popular and practical way to achieve the required capabilities in a cost- effective and timely manner is to source them from outside. Outsourcing occurs when one company contracts with another company to provide services that might otherwise be performed by in-house employees. Almost every organization outsources in some way. Typically, the function being outsourced is considered non-core to the business. Many large companies now outsource jobs such as call center services, e-mail services, and payroll, etc. In fact, all tasks other than the company's core competencies are possible contenders for outsourcing. These jobs are handled by separate companies that specialize in each service, and may be located in another country or even continent.

There are many reasons that companies outsource various jobs, but the most noticeable advantage seems to be the fact that it often saves money. Many of the companies that provide outsourcing services are able to do the work for considerably less money, as they have lean structures and fewer overhead expenses to worry about. The outsourcing firms are therefore able to operate on lower costs because of economies of scale. Outsourcing also allows companies to focus on other more important business issues while having the details taken care of by outside experts. This means that a large amount of time, resources and attention, which might fall on the shoulders of in-house professionals, can be used for more important, broader and strategic issues within the company. The specialized company that handles the outsourced work is often streamlined, with first-rate capabilities and access to new technology that a company could not afford to buy on its own. In addition, if a company is looking to expand, outsourcing is a cost- effective way to start building foundations in other countries.

Information Technology in Financial Services | Reference Book 2

Outsourcing Benefits

Opponents of outsourcing highlight some disadvantages. One of these is that outsourcing often eliminates direct communication between a company and its customers. This prevents a company from building firm relationships with their customers, and often leads to discontent on one or both sides. There is also the danger of not being able to control some aspects of the company, as outsourcing may lead to tardy communications and project implementation. Any sensitive information is more vulnerable, and a company may become very dependent upon it's outsource providers, which could lead to problems if the outsource provider backs out of their contract abruptly.

There are numerous benefits of outsourcing making it a very deliberate business practice. Outsourcing is not just about saving on costs but bringing the company long term success and opportunities for growth. Here are some of the benefits of outsourcing. They depend, of course, upon the nature and situation of the organization and market forces.

1. The cost advantage

As mentioned earlier, the greatest advantage of outsourcing stems from the extra savings a company can enjoy. If the same service can be provided at the same or better level of quality by another firm but for a much lower cost, then any company will have every motive to outsource. For example, in a financial institute, services such as call center and customer service, medical billing, transcription, etc. can sometimes help save on 60% of total costs in specific areas.

2. Increase in business, productivity and efficiency

Outsourcing can offer companies vast growth in terms of productivity, profits, level of quality, business performance, business value, and so on. Companies that handle everything in-house have to spend additional funds on research, marketing and development, customer service, etc. However, outsourcing some procedures will allow the company and employees to concentrate on the core activities of business without compromise of the other, less important processes. This increase in emphasis on core tasks will subsequently lead to increase in efficiency and productivity.

3. Reduce labor and infrastructure costs

Outsourcing can save a lot in terms of effort, infrastructure and labor costs* Hiring staff and training them for peripheral or short-term projects can be expensive. Firms also have to invest in fixed investments and infrastructure costs have amplified uncontrollably. It can also take some time before new employees are trained and can start working on the project or the infrastructure to be completed. However, outsourcing can save the company from the burdens of manpower and infrastructure. Instead, it can focus al its human resources and infrastructure where and when they are most efficient, and are most needed. The project can also start as soon as possible as capabilities are not needed to be developed but sourced from outside. All this should result in positive cash flows.

4. Access to specialized services

Outsourcing permits companies to take benefit of the services of ex and experienced professionals who specialize in specific business pracS Their experience will allow them to provide services at a level of effici than firms and their existing manpower could achieve.