IT Outsourcing

This is the continuation of my previous post about IT. To get the IT work done, a company has following choices:

1. Do it internally, or

2. Outsource it.

If the company plans to get done everything internally, then it can either:

1. Do it in a captive unit at its main location

2. Open a new captive centre in a low cost country like India.

If the company plans to get done everything externally, then it can either:

1. Go for near-sourcing (e.g. Capgemini for a company in Europe)

2. Go for far-sourcing (e.g. Infosys for a company in US)

There are advantages and disadvantages of all formats.

Indian companies operate under outsource and off-shore space. They provide the dual benefit of low cost and quality work. You would then think why would not every company go for outsourcing and offshoring? Well, it is because there are a few disadvantages too. e.g. there is a lack of control in case of outsourcing to a third party vendor. A company has no visibility into project schedules, quality of people, safety of sensitive data and risk of key employees leaving and company having no control on retaining them. The business secrets may also get lost as vendor employees move from one client to another.

To connect this thought with the one presented in the previous post, companies could spend the staying in the race or to some extent winning the race budgets in outsourcing and offshoring. The third party companies have already developed expertise in such work and there is not much strategy involved, so the risk is lesser. The innovation part of budget can be spent in-house.