(Note: This is a reply to Mr. G.'s thread in USEP-IC forum - Assignment 8: As a student, you were invited by the Dean of the Institute of Computing to attend a seminar-workshop on information systems planning with some of the faculty members. In one of the sessions, a discussion of outsourcing came up. You have been asked to present your evaluation about outsourcing the information systems functions of the school. Required: You are to take a position- outsource or in-source and justify your position.)
This is similar to what we call as the ‘hottest’ topic every time we have sessions in our Management Information System module reporting. “…in the case of our university’s information systems, should we outsource?” This brought varying reactions from several individuals who expressed their thoughts about the matter. Before we mark our final word, we shall first weigh the factors involved.
So, what is really ‘outsourcing’? What is its difference from ‘in-house’ or ‘in-sourcing’? What are the factors involved regarding this matter? Let us first discuss these few explanations based on what I have researched.
In-housing or in-sourcing, is actually the administration of ancillary activity within a company. It is managing by using the resources within a company. Outsourcing on the other hand, is subcontracting. It is the purchase by a company of labor or parts from a source outside the company rather than using the company’s staff or plant.
Why is there a need to outsource, instead of keeping in in-sourcing? Let us take the example of making a website. Once a certain organization decides to make a company website, it will need the necessary manpower to keep in charge of it. In other words, it will need to decide who will undertake the project and maintain the web site over time. There are various skills required to carry out this project and these skills may be found in some existing staff working for the company. But there are also cases when the management has to decide whether to hire somebody who may have possessed those certain skills to be work part-time or full-time, or to contract services from an outside source. In this case, when the company decides to hire staff and/or services outside their company, outsourcing happens.
In-housing versus Outsourcing
If you opt to start a critical project, you have to weigh your current in-house capacity first. Will your staff be able to address the needs? Will your resources allow you to do the task(s) completely? If you think your skills and budget allow you to deal with the task without aid from outside source then you have to take advantage of your potential - use your own resources within the company. On the other hand, if you think that you will be working out with more than you could ever handle, then I guess you should consider the advantages and disadvantages of outsourcing.
When you choose in-house to hire in-house staff you can have these several benefits:
- Managerial control and ease of communication
Of course when you choose to have your own company staff working for your tasks, you can easily manage to look after them and how they do the job. It would be best for you if you will keep in touch with the updates of your projects being carried out by personnel working within your reach. In case of some sudden changes and modifications, you can easily tap them since they are your company’s workforce.
- Timeliness
If you have a task to be done, you can immediately call your staff’s attention for the urgent matter. The great thing here is you have greater control over your personnel on when your task has to be done or updated. For example, in a company’s website scenario, if you need a few changes for your site, your staff can immediately do it for you even in a few minutes compared to the vendor or outsourced personnel who may happen to have another client aside from you (tendency is you will be putting yourself in a queue especially if there are other customers being served by your outsourced provider).
- Quality of Results
Since you have greater control over your projects and resources, you have more chances of achieving desirable results. It is because you are there to guide them when the personnel are working on the projects along the way.
- New funding opportunities
If you have really skilled personnel, you could invest in developing your in-house capacity to do certain jobs. This will generate extra income for the company or to your staff, and perhaps you could even sell new products and services.
- Financial predictability
When we speak of costs, it is easier to estimate how much will you spend in your projects if workforce time is included in your resource budget.
- Security and confidentiality issues
Definitely, you have fewer worries about your company’s assets and information especially on matters of privacy.
Those are on the in-housing staff side. Now let us talk about more on outsourcing. I should say this is quite a broader topic to talk about. As business organizations grow larger across the years, there are pressures on business and companies to be more and more competitive in their fields. Thus, there is a need to increase their productivity. Some felt that in order to gain more efficiency, outsourcing the resources of the company is an easy way out. Well, does it really address the needs?
Some of the key reasons why an organization should consider outsourcing are: competitive response, loss of key staff, cost overruns and project time, new product designs don’t work, and problem with quality and yield.
(See also Wikipedia’s Reasons for Outsourcing…)
Now let us discuss some benefits regarding outsourcing:
One major advantage of outsourcing is less capital expenditure. Outsourcing is an effective way to extend your budget. In terms of personnel budget alone, you can save costs for wages and additional employee benefits (which may include trainings, tax payments, etc). When you outsource information technology requirements, you don’t have to pay for the expensive hardware and software needed.
Less management headache, in the sense that the management has less control on the personnel working for a particular project or task. Thus, time spent by the management on personnel will be lesser. For example, in IT maintenance, the company doesn’t have to take time hiring and/or training staff since you probably will have valuable technical expertise by your outsource vendor.
Focus on core competencies. When you outsource IT activities to outside companies, this will provide you greater time concentrating on your core activities and strengths of the company. This will also give way to increased production time. Since your outsource company will be focusing on a specific project rather than the numerous company business activities, actual production time will speed up giving your business a competitive advantage.
Outsourcing also gives company the flexibility to change third-party vendors. In other words, they are easy to fire. When you are not satisfied with the results of your projects and you are not happy with the services provided by your vendor, it is easier to change to a new outsource provider than it is to fire poorly-performing company staff. This is because outsource vendors and your company agree that services will be provided to a legally binding contract with financial penalties.
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So now that you have read about the advantages of outsourcing, you probably think that this is a best way to your company’s business. But we still have to think things over because the disadvantages are not yet specified. Before deciding to outsource your company’s business process, let discuss some drawbacks of outsourcing:
One major disadvantage is less managerial control. As I have stated in the above statements, this can be a benefit. But what makes it a weakness is that you actually are losing control over your outsourced project (or at least a part of it) since the vendor will take charge of the job. It may be harder to manage your outsourcing provider than it is to manage your staff especially that service providers usually stress their control over the projects they’re working out.
This is also associated with lack of communication. Most companies find it hard to have constant communication links with their outsource providers. Problems linked with this involve misunderstanding between company customers and outsourced customer service representative, difference in language and cultural problems (in cases of outsourcing to another country), and several inherent difficulties like having conversations in varying available schedule between you and the vendor (like having different time zones of work).
Undesirable results. For example, a company hires a vendor to mass produce a product and when the finished products don’t meet with the company’s standards, chances are the manufacturing process will then be repeated probably by a different vendor. Quality risks in outsourcing are driven by several factors and cases such as the following: most vendors try to accumulate as many projects as they can (granted that they have other clients aside from you, there could be more projects that the outsource vendor will accept even if the burden is more than they could bear. This may wreck your project schedule, if not the whole project.); some vendors advertise services and even accept projects with little or no expertise in the corresponding areas (of course they wanted to gain more so they would take out your project. Lack of supplier capabilities / resources / capacity becomes a problem.); outsourcing company might go out of business (in the event that your vendor goes bankrupt or out of business, you will have to change to a new provider to continue business or you may take the process back in-house.).
Outsourcing can be very costly. It may be more expensive for the company in the sense that the company is paying twice for the same job. Not only it is a waste of time and materials but there is also possibility that the company will lose sales during the same period due to unavailability of the product. Sometimes it is cheaper to keep a business process in-house as compared to outsourcing.
Another main problem by organizations that outsource is security and confidentiality issues. There are cases when you are outsourcing business processes to a vendor such as payroll, and if so, some confidential information like salary will be known to the outsourcing provider. Before outsourcing, the company is liable for the actions of their staff. When they outsource personnel, these workers are not anymore directly employed or connected to the organization. Chances are, this may cause legal, security, and compliance issues that are to be addressed by binding contract so to avoid frauds.
Loss of jobs can be one drawback of outsourcing. Granted that the company may outsource personnel from other organizations and/or other countries to save money in wages, they will have to reduce their company’s workforce at the expense of laying off their employees.
Those are several outsourcing disadvantages to look at. Will outsourcing or keeping in-house really profit your business? Well, it depends. There are still other issues yet to consider. Both parties should pay attention to contracts. In the case of outsourcing IT, there are more development of tools and databases, so you have to be aware of which outsource services will you have to pay or not. For example, your vendor happened to develop a special tool that can be considered as their intellectual property, you can’t take it with you when their contract of service ends and you choose another vendor. Sustainability is also an essential issue. In the company website scenario, your company has to be steady in gaining income so to pay salaries for a full-time maintenance staff.
Status of the University
Let us now discuss the overview of the university’s situation. Currently, the university has recently changed to in-house after hiring some outsource company for the campus’ information system. For the past years that I have been a part of the university, we, students, could really feel the consequences of the processes that our school involves especially regarding the enrolment system. Now the university has decided to try using the services by its own IT personnel who have also expertise in the field of systems development. Our current management information system (this includes the entire enrolment process – registrar, cashier, local offices involved) is being programmed mainly by two of our faculties. Surely, we had another type of enrolment process undergone just last summer (when the new system had just recently been simulated) and this semester. Well, it feels like we are actually having a series of different type of enrolment process every year! I know the university is actually finding and testing many sorts of system and that they are looking for the perfect match that would be implemented for the campus permanently, or at least for a longer period of time.
Regarding the issue, we in our Management Information System class are debating whether the university made the right decision to change from outsourcing the IS process to in-house. And as many as the key points I have mentioned, we were also having uncertainties as to which we should stand with. In-house or outsource? Which is better for the university?
Whatever the case is, it is still better to weigh things according to the situation and those involved with it. I have heard that the primary reason the school administration decided to cut the outsourcing service is cost. So the administration tapped the IT faculties inside the campus to save long-term costs. This posed an advantage both to the university and the staff as well. As stressed out by our class instructor (I agree with him), we have local personnel who are highly-skilled in the said field, so why not use them? That is also an additional income for them, and the university budget will not go outside the institution, but to its own workforce. Furthermore, it is of pride to realize that we actually have and are using a system developed by our own university family members. This surely makes us proud of our instructors who are not only proficient in sharing their field of expertise to class discussions but are actually applying their knowledge to a system we are currently using.
But as experts would say just choosing between outsourcing staff or in-housing does not necessarily mean straight success to the organization’s business. Until now we are analyzing which feels better – the previous system or the existing implementation?
My Stand
Having thought about the scenario of our university I am coming up to a position for which I think is better for the information system functions of the university. My evaluation is guided by these factors I have gathered from my research:
Cost
- In-house (or outsource) labor costs
- In-house (or outsource) equipment costs
- In-house (or outsource) ‘other’ costs
- In-house (or outsource) annual expenditure
Features and functionality
Efficiency of operations
Quality of service provided
Security of service provided
Reputation of vendor (in outsourcing) / staff (in-house)
Current technology
Cost
I don’t really know how big or small of the university budget will be sliced out to the labor cost of developing and/or maintaining the IS of the school. But I am sure that the major part incurred is the wages paid to the system developer. In the case of outsource service provider, the university doesn’t have to pay for benefit expenses, payroll taxes, and sick/leave/vacation allowances. But granted that the ones working for the system are present university staff, I think it is quite lesser than long-term expenses paid to outside company.
In terms of equipment, well, I should say that the university is not really that streamlined when we talk of hardware components. We have some computer units to use, some good ole servers and mainframe, but I don’t think it is more than enough. Anyway, the workmen’s computers are just those which they use in other transactions, the university did not invest in equipments needed to system development. (More about this on current technology issues) I’m just wondering if they thought of looking for some software and miscellaneous materials needed for it.
The ‘other’ expenses are perhaps in the form of monthly office rentals, employees’ training expense on software installed, fees paid to technical experts and maintenance operators, that is, on the side of outsource service provider. In the case of our university programmers, monthly office rental is not a problem, as well as training expense (our faculty and staff have experience and potential) and fees to maintenance operators (since we also have school operators assigned in computer maintenance).
The above factors can be summed up to total expenditures that we can calculate by long-term budget. Well, in this case, I cannot give you the exact amount to compare the costs of hiring the university personnel and outsourcing the service. Only the administration knows that. Hehe.
Features and functionality
The system’s performance level should be well taken care of in the sense that the personnel should keep an eye on the maintenance procedure of the ongoing processes. In the case of university’s in-source staff, they have timely access to the IS because they are existent workers of the campus. I guess this is better than outsourcing staff because our faculty have high priority on having immediate access to our school’s system. On this matter, they could easily check the functionalities of the current system and can easily modify its features if there be any urgency to do so.
Efficiency of operations
The reliability and efficiency of the system procedures are high on the organization’s list in that it requires effective communications. Having pointed out some outsource drawbacks regarding communication on both parties, and benefits of outsourcing more on the skills side, I can say that we could still maintain a good system even by in sourcing. Regarding the capability of staff we are not that behind, and communication gaps won’t be a problem since they are within reach.
Quality and security of service provided
We don’t need superb information system, we just need an efficient one adequate for the university’s needs. Well, that is, as for the moment. As soon as we address the needs of the university’s information system functions, there’s no reason in deterring the advancement of our IS be it in the interface or functionality side. In the long run, our IS staff will be able to maintain and improve further the quality of our IS. I should say that security will not be a major issue here since there is no need for confidential information to leak out of the university premise. Since service quality is essential and security is vital, the university has more control in in-house staff rather than outsourcing these services. Our developers are our own family. I’m pretty sure they can be trusted enough in their field.
Reputation of vendor/staff
This is something to be checked out especially when we give a critical task to the one who will do the project. When we outsource, we have to check the background of the outsource service provider, their skills and capabilities, relevant case studies and success stories, and the like. In the case of our in-house staff, their reputation is well-known in the university (and vice versa!). Like I’ve said, the personnel tapped by the administration are trained and have spent years in experience in their profession. We also have some co-faculties who could recommend them.
Current technology
Here, we are talking about the IS functions of the school in general and not only in the enrolment system development. I should say that the university should make investments in equipments necessary for the university’s business procedures. I have read that the relatively low rating of current technology factors results from two broad concepts: larger institutions have established technology standards and require new applications fit their standards, rather than considering new platforms for each new application; and, smaller institutions tend to make greater use of outsourcers, and therefore delegate the definition of the enabling technologies to those outsourcers. I must admit that the university is on its way to improving the technology we are using. I guess I should share these points in evaluating in-house or outsource decisions:
- Will a modern archive system architecture be easily integrated into an existing IT system?
- Will it sufficiently scale as the business grows?
- Does the IS solution sufficiently support the business policies of the institution?
- Does the technology assure long and reliable data life?
If I am to ask, I should say that we can keep in in-housing our IS staff as evident in the key points I have mentioned above. But I think we should consider outsourcing the equipments our university is using since initial costs as well as long-term maintenance operating cost is a primary factor of the university’s decision, and we can’t say that we could provide our necessary tools and equipments as soon as we urgently need it.
Regarding the question on whether in-housing or outsourcing services will really improve our university, it depends. But I’m quite sure that we have at least capable personnel potentials (the question now is the budget support of the university for the project) so we have less need to outsource staff services, yet we are fairly deficient in terms of material resources so outsourcing can be considered. The number of years that the equipment(s) will serve the company and its depreciation value will have to be added to the operational cost annually, and these should be included in evaluation.
References and resources which supported me in making this essay:
Advantages and Disadvantages of Outsourcing
Sustainable Development Communications Network: In-house staff vs. outsourcing
Medical Transcription Outsourcing Cost Benefits Louisiana:
Outsourcing IT Development: Advantages and Disadvantages by Basil Tesler
Outsourcing: The Advantages And Disadvantages Of Outsourcing
In-house or Outsourced Image Archive Services: Plotting Position and Course
Whitepaper by Dana Gould & Aaron McPherson October 2008
Wikipedia.com - Outsourcing
MS Encarta Dictionaries
2 comments:
outsource is a better choice
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