The Advantages and Disadvantages of Outsourcing

What is Outsourcing?

Outsourcing is an allocation of specific business processes to a specialist external service provider. Most of the times an organization cannot handle all aspects of a business process internally. Additionally some processes are temporary and the organization does not intend to hire in-house professionals to perform the tasks. Once the task is assigned to the service provider, he will take the responsibility of carrying out the tasks and maintaining the organization’s assets.

However prior to outsourcing any component of your business to a third-party vendor, it is essential to understand the advantages and disadvantages of outsourcing. Although outsourcing presents a variety of benefits to your organization, it could also pose difficulties if not outsourced to the right service provider.

The most commonly outsourced streams of business include.

Content Development Web Design and Maintenance

Recruitment

IT Maintenance

Logistics

Manufacturing

Technical/Customer Support

Why do organizations outsource their business process?

The key factors which have led to a growing trend of outsourcing are

Lack of expert-labor in some portions of the business process Availability of cheaper labor, whilst not comprising on the quality of output

Ability and feasibility to concentrate on the other crucial business process

These factors have specifically contributed to most of the outsourced partners originated form India. Expertise in communication capabilities, technical expertise and favorable financial packages are the most important advantages of outsourcing to India.

Advantages and Disadvantages of Outsourcing

Outsourcing most commonly known as offshoring has two sides to it. Most of the time, the advantages of outsourcing overshadow the disadvantages of outsourcing.

1

The Advantages of Outsourcing

Swiftness and Expertise: Most of the times tasks are outsourced to vendors who specialize in their field. The outsourced vendors also have specific equipment and technical expertise, most of the times better than the ones at the outsourcing organization. Effectively the tasks can be completed faster and with better quality output

Concentrating on core process rather than the supporting ones: Outsourcing the supporting processes gives the organization more time to strengthen their core business process.

Risk-sharing: one of the most crucial factors determining the outcome of a campaign is risk-analysis. Outsourcing certain components of your business process helps the organization to shift certain responsibilities to the outsourced vendor. Since the outsourced vendor is a specialist, they plan your risk-mitigating factors better.

Reduced Operational and Recruitment costs: Outsourcing eludes the need to hire individuals in-house; hence recruitment and operational costs can be minimized to a great extent. This is one of the prime advantages of offshore outsourcing.

Outsourcing your non-core activities will give you more time to concentrate on your core business processes

Offshoring can give you access to professional, expert and high-quality services

With outsourcing your organization can experience increased efficiency and productivity in non-core business processes

Outsourcing can help you streamline your business operations

Offshore outsourcing can help you save on time, effort, manpower, operating costs and training costs amongst others

Outsourcing can make your organization more flexible to change

You can experience an increased control of your business with outsourcing

Your organization can save on investing in the latest technology, software and infrastructure as your outsourcing partner would be investing in these

Outsourcing can give you assurance that your business processes are being carried out efficiently, proficiently and within a fast turnaround time

Offshoring can help your organization save on capital expenditures

By outsourcing, your company can save on management problems as your offshore partner will be managing the team who does your work

By outsourcing, you can cater to the new and challenging demands of your customers

Outsourcing can help your organization to free up its cash flow

Sharing your business risks is possible with outsourcing

2

Outsourcing can give your business a competitive advantage as you will be able to increase productivity in all the areas of your business

Outsourcing can help your organization to cut is operational costs to more than half

The Disadvantages of Outsourcing

Risk of exposing confidential data: When an organization outsources HR, Payroll and Recruitment services, it involves a risk if exposing confidential company information to a third-party.

Synchronizing the deliverables: In case you do not choose a right partner for outsourcing, some of the common problem areas include stretched delivery timeframes, sub-standard quality output and inappropriate categorization of responsibilities. At times it is easier to regulate these factors inside an organization rather than with an outsourced partner.

Hidden costs: Although outsourcing most of the times is cost-effective at times the hidden costs involved in signing a contract while signing a contract across international boundaries may pose a serious threat.

Lack of customer focus: An outsourced vendor may be catering to the expertise-needs of multiple organizations at a time. In such situations vendors may lack complete focus on your organization’s tasks

At times, it is more cost-effective to conduct a particular business process, rather than outsourcing it

While outsourcing services such as payroll processing services and tax preparation services, your outsourcing provider will be able to see your company’s confidential information and hence there is a threat to security and confidentiality in outsourcing

When you begin to outsource your business processes, you might find it difficult to manage the offshore provider when compared to managing processes within your organization

Offshoring can create potential redundancies for your organization

In case, your offshore service provider becomes bankrupt or goes out of business, your organization will have to immediately move your business processes in-house or find another outsourcing provider

The employees in your organization might not like the idea of you outsourcing your processes and they might express lack of interest or lack of quality at work

Your outsourcing provider might not be only providing services for your organization. Since your provider might be catering to the needs of several companies, there might be not be complete devotion to you and your company

By outsourcing, you might forget to cater to the needs of your valuable customers as your focus will be on the business process that is outsourced

In outsourcing, you may lose your control over the process that is outsourced

3

Outsourcing, though cost-effective, might have hidden costs, such as the legal costs incurred while signing a contract between companies. You might also have to spend a lot of time and effort in getting the contract signed

With outsourcing, your organization might suffer from a lack of customer focus

There can be several disadvantages in outsourcing, such as, renewing contracts, misunderstanding of the contract, lack of communication, poor quality and delayed services amongst others.

Network model

The network model is a database model conceived as a flexible way of representing objects and their relationships. Its distinguishing feature is that the schema, viewed as a graph in which object types are nodes and relationship types are arcs, is not restricted to being a hierarchy or lattice.

The network model's original inventor was Charles Bachman, and it was developed into a standard specification published in 1969 by the CODASYL Consortium. CODASYL (often spelt Codasyl) is an acronym for "Conference on Data Systems Languages". This was an Information technology industry consortium formed in 1959 to guide the development of a standard programming language that could be used on many computers. This effort led to the development of COBOL.

CODASYL's members were individuals from industry and government involved in data processing activity. Its larger goal was to promote more effective data systems analysis, design, and implementation. The organization published specifications for various languages over the years, handing these over to official standards bodies (ISO, ANSI, or their predecessors) for formal standardization.

Hierarchical database model

A hierarchical data model is a data model in which the data is organized into a tree-like structure. The structure allows repeating information using parent/child relationships: each parent can have many children but each child only has one parent (also known as a 1:many ratio ). All attributes of a specific record are listed under an entity type.

4

In a database, an entity type is the equivalent of a table; each individual record is represented as a row and an attribute as a column. Entity types are related to each other using 1: N mapping, also known as one-to-many relationships. this model is recognized as the first data base model created by IBM in the 1960s

The most recognized and used hierarchical databases are IMS developed by IBM and Windows Registry by Microsoft.

Examples of Hierarchical Data Represented as Relational Tables

An organization could store employee information in a table that contains attributes/columns such as employee number, first name, last name, and Department number. The organization provides each employee with computer hardware as needed, but computer equipment may only be used by the employee to which it is assigned. The organization could store the computer hardware information in a separate table that includes each part's serial number, type, and the employee that uses it. The tables might look like this:

EmpNo

First Name

Last Name Dept. Num

100 Sally Baker 10-L101 Jack Douglas 10-L102 Sarah Schultz 20-B103 David Drachmeier 20-B

Serial Num Type User EmpNo3009734-4 Computer 1003-23-283742 Monitor 1002-22-723423 Monitor 100232342 Printer 100

In this model, the employee data table represents the "parent" part of the hierarchy, while the computer table represents the "child" part of the hierarchy. As shown, each employee may possess several pieces of computer equipment, but each individual piece of computer equipment may have only one employee owner.

Consider the following structure:

5

EmpNo Designation ReportsTo10 Director20 Senior Manager 1030 Typist 2040 Programmer 20

In this, the "child" is the same type as the "parent". The hierarchy stating EmpNo 10 is boss of 20, and 30 and 40 each report to 20 is represented by the "ReportsTo" column. In Relational database terms, the ReportsTo column is a foreign key referencing the EmpNo column. If the "child" data type were different, it would be in a different table, but there would still be a foreign key referencing the EmpNo column of the employees table.

This simple model is commonly known as the adjacency list model, and was introduced by Dr. Edgar F. Codd after initial criticisms surfaced that the relational model could not model hierarchical data.

INTRANET:

An intranet is a private computer network that uses Internet Protocol technologies to securely share any part of an organization's information or network operating system within that organization. The term is used in contrast to internet, a network between organizations, and instead refers to a network within an organization. Sometimes the term refers only to the organization's internal website, but may be a more extensive part of the organization's information technology infrastructure. It may host multiple private websites and constitute an important component and focal point of internal communication and collaboration.

Benefits of intranet:

Workforce productivity: Intranets can help users to locate and view information faster and use applications relevant to their roles and responsibilities. With the help of a web browser interface, users can access data held in any database the organization wants to make available, anytime and - subject to security provisions - from anywhere within the company workstations, increasing employees' ability to perform their jobs faster, more accurately, and with confidence that they have the right information. It also helps to improve the services provided to the users.

Time: Intranets allow organizations to distribute information to employees on an as-needed basis; Employees may link to relevant information at their convenience, rather than being distracted indiscriminately by electronic mail.

Communication: Intranets can serve as powerful tools for communication within an organization, vertically and horizontally. From a communications standpoint, intranets are useful to communicate strategic initiatives that have a global reach throughout the organization. The type of information that can easily be conveyed is the purpose of the initiative and what the initiative is aiming to achieve, who is driving the initiative, results achieved to date, and who to speak to for more information. By providing this information on the intranet, staff have the opportunity to keep up-to-date with the strategic focus of the organization. Some examples of communication would be chat, email, and or blogs. A great real world example of where an intranet helped a company communicate is when Nestle had a

6

number of food processing plants in Scandinavia. Their central support system had to deal with a number of queries every day.[3] When Nestle decided to invest in an intranet, they quickly realized the savings. McGovern says the savings from the reduction in query calls was substantially greater than the investment in the intranet.

Web publishing allows cumbersome corporate knowledge to be maintained and easily accessed throughout the company using hypermedia and Web technologies. Examples include: employee manuals, benefits documents, company policies, business standards, newsfeeds, and even training, can be accessed using common Internet standards (Acrobat files, Flash files, CGI applications). Because each business unit can update the online copy of a document, the most recent version is available to employees using the intranet.

Business operations and management: Intranets are also being used as a platform for developing and deploying applications to support business operations and decisions across the internetworked enterprise.

Cost-effective: Users can view information and data via web-browser rather than maintaining physical documents such as procedure manuals, internal phone list and requisition forms. This can potentially save the business money on printing, duplicating documents, and the environment as well as document maintenance overhead. For example, Peoplesoft "derived significant cost savings by shifting HR processes to the intranet".[3] McGovern goes on to say the manual cost of enrolling in benefits was found to be USD109.48 per enrollment. "Shifting this process to the intranet reduced the cost per enrollment to $21.79; a saving of 80 percent". Another company that saved money on expense reports was Cisco. "In 1996, Cisco processed 54,000 reports and the amount of dollars processed was USD19 million".[3]

Enhance collaboration: Information is easily accessible by all authorised users, which enables teamwork.

Cross-platform capability: Standards-compliant web browsers are available for Windows, Mac, and UNIX.

Built for one audience: Many companies dictate computer specifications which, in turn, may allow Intranet developers to write applications that only have to work on one browser (no cross-browser compatibility issues). Being able to specifically address your "viewer" is a great advantage. Since Intranets are user-specific (requiring database/network authentication prior to access), you know exactly who you are interfacing with and can personalize your Intranet based on role (job title, department) or individual ("Congratulations Jane, on your 3rd year with our company!").

Promote common corporate culture: Every user has the ability to view the same information within the Intranet.

Immediate updates: When dealing with the public in any capacity, laws, specifications, and parameters can change. Intranets make it possible to provide your audience with "live" changes so they are kept up-to-date, which can limit a company's liability.

Supports a distributed computing architecture: The intranet can also be linked to a company’s management information system, for example a time keeping system

7

EXTRANET

An extranet is a computer network that allows controlled access from the outside, for specific business or educational purposes. An extranet can be viewed as an extension of a company's intranet that is extended to users outside the company, usually partners, vendors, and suppliers. It has also been described as a "state of mind" in which the Internet is perceived as a way to do business with a selected set of other companies (business-to-business, B2B), in isolation from all other Internet users. In contrast, business-to-consumer (B2C) models involve known servers of one or more companies, communicating with previously unknown consumer users. An intranet is like a DMZ in that it provides access to needed services for channel partners, without granting access to an organization's entire network.

Advantages

Exchange large volumes of data using Electronic Data Interchange (EDI) Share product catalogs exclusively with trade partners

Collaborate with other companies on joint development efforts

Jointly develop and use training programs with other companies

Provide or access services provided by one company to a group of other companies, such as an online banking application managed by one company on behalf of affiliated banks

Disadvantages

Extranets can be expensive to implement and maintain within an organization (e.g., hardware, software, employee training costs), if hosted internally rather than by an application service provider.

Security of extranets can be a concern when hosting valuable or proprietary information.

Wide area network

A wide area network (WAN) is a computer network that covers a broad area (i.e., any network whose communications links cross metropolitan, regional, or national boundaries [1]). This is in contrast with personal area networks (PANs), local area networks (LANs), campus area networks (CANs), or metropolitan area networks (MANs) which are usually limited to a room, building, campus or specific metropolitan area (e.g., a city) respectively.

WAN connection technology options

There are also several ways to connect NonStop S-series servers to WANs, including via the ServerNet Wide Area Network (SWAN) or SWAN 2 concentrator, which provides WAN client connectivity to servers that have Ethernet ports and appropriate communications software. You can also use the Asynchronous Wide Area Network (AWAN) access server, which offers economical asynchronous-only WAN access. Several options are available for WAN connectivity:[2]

Option: Description Advantages Disadvantages Bandwidth Sample

8

rangeprotocols

used

Leased line

Point-to-Point connection between two computers or Local Area Networks (LANs)

Most secure Expensive

PPP, HDLC, SDLC, HNAS

Circuit switching

A dedicated circuit path is created between end points. Best example is dialup connections

Less Expensive Call Setup28 - 144 kbit/s

PPP, ISDN

Packet switching

Devices transport packets via a shared single point-to-point or point-to-multipoint link across a carrier internetwork. Variable length packets are transmitted over Permanent Virtual Circuits (PVC) or Switched Virtual Circuits (SVC)

Shared media across link

X.25 Frame-Relay

Cell relay

Similar to packet switching, but uses fixed length cells instead of variable length packets. Data is divided into fixed-length cells and then transported across virtual circuits

Best for simultaneous use of voice and data

Overhead can be considerable

ATM

Transmission rates usually range from 1200 bit/s to 24 Mbit/s, although some connections such as ATM and Leased lines can reach speeds greater than 156 Mbit/s. Typical communication links used in WANs are telephone lines, microwave links & satellite channels.

Recently with the proliferation of low cost of Internet connectivity many companies and organizations have turned to VPN to interconnect their networks, creating a WAN in that way. Companies such as Cisco, New Edge Networks and Check Point offer solutions to create VPN networks.

9