When is Outsourcing NOT an Option?

The decision to outsource the IT functions of an organization depends on the costs and benefits associated with it. The primary objective of outsourcing is to reduce the operational costs while gaining some competitive advantage over other competitors. At the same time, we must also consider the risks and long-term impact to the organization. Once we outsource certain functionality, the organization starts depends on those sourcing organizations and may face new uncontrollable risks. In this context, it is worthwhile to find out the possible disadvantages of outsourcing so that we can assess the impact of them on our outsourcing objectives.

What is the appropriate delivery model for the outsource strategy?

The appropriate delivery model for the outsource strategy of an organization depends on many things. When your objective is just short-term cost savings, or the activities under consideration are non-core, non-critical, then typically, you may simply outsource those activities to some vendor. However, in some cases captive operations can be more profitable than outsourcing. When the IT operations are part of your core competency, outsourcing may not be a suitable approach. For instance, if you are a software development firm and wants to control the entire software development life cycle, then captive operation may be a better approach than outsourcing.

In any kind of outsourcing, knowledge transfer remains an important aspect. Initially the organization may require disclosing certain information to the outsourcing vendor. Then throughout the project new knowledge may created and issues can arose regarding the ownership of the intellectual property rights. When the activities are highly knowledge based, the complex intellectual property rights situation may even outweigh the short-term cost advantages of outsourcing. On the other hand, captive operation may be a better approach to simplify these issues and keep the intellectual property rights within the organization.