Essays academic service


The benefits of outsourcing for an organizations it activities

Examples of commonly outsourced activities include: IT services; delivery, logistics and distribution services; human resources services; sales and marketing services; procurement services; customer call centre services; and finance and accounting services. The decision to outsource is typically developed at senior levels of corporate management and is usually contemplated as part of a larger strategic initiative.

The recognized benefits of outsourcing include: Ultimately, outsourcing should serve to make companies more flexible and agile, ready to meet the challenges of doing business in an increasingly technological and competitive world, while providing cost savings and service level improvements.

According to a new survey from Duke University's Offshoring Research Network and PricewaterhouseCoopers PwCoutsourcing providers around the world predict demand for their services will expand rapidly and are adding staff and investing in new services to meet that expected growth.

The economic crisis of 2009 re-emphasized the importance of cost savings and efficiency improvements as the top strategic reasons for outsourcing, followed by access to qualified personnel.

Unrealistic client expectations and the lack of a client outsourcing strategy were cited as the top reasons for contract terminations.

Furthermore, it can create difficulties in managing the service provider beyond those present when managing people and processes sited within the company, particularly over time, as re-badged employees move on to staff other service provider accounts.

Risks Specific To Offshore Outsourcing When services are outsourced to offshore providers, a customer faces increased costs and risks compared to solutions involving on-shore resources. Offshore outsourcing, though potentially more cost-effective, may involve hidden costs including: Lastly, managing the actual offshore relationship is also a major additional and sometimes unforeseen cost.

Aside from costs, other risks which must be considered when outsourcing to offshore companies include: Privacy concerns are addressable see Part 3 below. On the IP front, some Indian courts have recently demonstrated a meaningful response to the problem of respect for and enforcement of IP rights in their respective countries by awarding punitive and exemplary damages in infringement cases.

  • While cost savings are the main reason to onshore, skill shortages can also drive businesses to look for talent in alternative locations;
  • The customer will be in a weak position at the time the outsourcing relationship is being terminated or is expiring to negotiate transition out terms and runs the risk of being exposed to large unexpected costs;
  • Outsourcing allows you to reach professionals that may be in short supply or unavailable locally;
  • As is the case with other sophisticated commercial contracts, outsourcing contracts usually include dispute resolution provisions.

This disparity creates a gap that is usually compensated for by additional vendor resources on-site. Vendor failure to deliver A common oversight for IT organizations lies in not implementing a contingency plan to deal with the risk that a vendor, for whatever reason, fails to deliver as expected. High risk or exposure might force the organization to unexpectedly alter its outsourcing strategy i.

  • In addition to the requirements discussed thus far, the OSFI outsourcing guideline also requires that;
  • Resources that are scarce at home can sometimes be found in abundance elsewhere, meaning you can easily reach them through outsourcing;
  • High risk or exposure might force the organization to unexpectedly alter its outsourcing strategy i;
  • While cost savings are the main reason to onshore, skill shortages can also drive businesses to look for talent in alternative locations;
  • Here are a few common reasons that can help explain the trend;
  • Ability to upscale fast.

Culture Cultural differences include religion, mode of dress, social activities and even the way a question is asked or answered. Although most leading vendors have cultural education programs, the challenges and costs associated with cultural alignment may not be insignificant or trivial.

Turnover of key personnel Rapid growth among outsourcing vendors has created a dynamic labour market. Competitive Procurement Potential Pitfall: Once acquired, these data will assist the parties in negotiating the appropriate deal parameters including pricing, service levels and the length of the initial term.

This risk is particularly present when, as a result of an over-reliance upon the competitive procurement process just discussed, the customer has aggressively negotiated down the profit margin accruing to the service provider pursuant to the agreement as initially negotiated. A service provider may not pass on the appropriate portion s of the cost reductions generated during the term of an agreement, such that the customer is subsequently placed at a relative competitive disadvantage.

In order to have a viable means for testing whether any promises made by the service provider have been adhered to and that the expected cost reductions have materialized and have been appropriately shared during the term of the agreement, the customer will often propose that benchmarking provisions also be included in the agreement. The benefits of outsourcing for an organizations it activities the other hand, a customer would be leery to agree to provisions where the output of a time consuming and expensive benchmarking process is merely an opportunity to meet with service provider representatives to discuss the possibilities for reducing costs, and therefore pricing, under the agreement.

Service Levels Potential Pitfall: A failure to adequately define the nature of the service expectations via the service level agreement SLA portion of the overall outsourcing agreement, and the initial monetary consequences in the event of failure s on the part of the service provider to meet those expectations, will increase the likelihood of disputes between the parties and leave the customer with inadequate means of incenting the service provider to meet its contractual commitments.

The benefits and risks of outsourcing

It is difficult to overstate the importance of negotiating a comprehensive and realistic SLA and, generally speaking, this portion of the negotiations tends to be both challenging and time consuming. This approach addresses the reality that termination tends not to be an attractive remedy for the customer in the event of poor service and thus should only be considered after less draconian options have been exhausted.

  • However, in accordance with transparency requirements, companies proposing to transfer data across borders for processing must advise the individuals concerned that their data may be transferred to a foreign service provider and that, when held in the foreign country, the data may be accessible to law enforcement and national security authorities of that country;
  • In addition to the requirements discussed thus far, the OSFI outsourcing guideline also requires that;
  • However, in accordance with transparency requirements, companies proposing to transfer data across borders for processing must advise the individuals concerned that their data may be transferred to a foreign service provider and that, when held in the foreign country, the data may be accessible to law enforcement and national security authorities of that country;
  • Lastly, managing the actual offshore relationship is also a major additional and sometimes unforeseen cost;
  • This approach addresses the reality that termination tends not to be an attractive remedy for the customer in the event of poor service and thus should only be considered after less draconian options have been exhausted.

Not having an appropriate dispute resolution process. As is the case with other sophisticated commercial contracts, outsourcing contracts usually include dispute resolution provisions. Such provisions can provide for an initial phase during which a dispute will be escalated up through a series of suitably constituted committees staffed by representatives of the parties.

This is followed by a second more formal phase during which any dispute which remains unresolved at the conclusion of the initial phase becomes the subject of: This process is intended to promote the submission of reasonable offer proposals by the parties as the arbitrator is limited to awarding one of the offers submitted. Transition Out Potential Pitfall: The customer will be in a weak position at the time the outsourcing relationship is being terminated or is expiring to negotiate transition out terms and runs the risk of being exposed to large unexpected costs.

The obligation to provide such termination services should be made contingent upon the payment to the service provider of all prior undisputed service fees and the execution of an appropriate confidentiality agreement by any such third party provider.

What Is Outsourcing?

The service provider will generally be entitled to additional compensation at defined rates if, in providing the termination services, it is required to use additional resources or additional resource hours. Transitioning out provisions also usually address: As a result, additional consent for the transfer is not required provided that the information is being used for the purpose it was originally collected.

However, in accordance with transparency requirements, companies proposing to transfer data across borders for processing must advise the individuals concerned that their data may be transferred to a foreign service provider and that, when held in the foreign country, the data may be accessible to law enforcement and national security authorities of that country. The Privacy Commissioner has not provided very much guidance as to how information respecting the intended processing of data outside of Canada must be communicated to the individuals concerned.

However, in two cases, she has approved of procedures whereby organizations sent a communication to customers notifying them of the intended processing.

What Is Outsourcing? IT Outsourcing Types, Models, Benefits, and Examples

Although the guideline sets a high standard for the protection of sensitive financial information by financial institutions, it can serve as a model for other organizations involved in the transfer of sensitive personal information.

In evaluating the risks associated with an outsourcing arrangement, management of the risk may be scaled to take into account the different levels of risk attendant to a particular arrangement.

The materiality of an outsourcing arrangement will depend on the extent to which the arrangement can influence a significant line of business of a company. Therefore, companies should consider the following when assessing the materiality of an outsourcing arrangement: Under Guideline B-10, companies are also required to have in place a risk management program that applies to all material outsourcing arrangements.

According to OSFI, this risk management program should include: Where a company is considering outsourcing an activity to a jurisdiction outside Canada, OSFI expects that the company will assess the legal requirements of the foreign jurisdiction, including the potential political, economic and social conditions, along with any events that may inhibit the ability of the foreign service provider to provide the service.

In addition to the requirements discussed thus far, the OSFI outsourcing guideline also requires that: This review could include an assessment of the service provider's circumstances such as its reliance on significant subcontractors and the historical performance record of those subcontractors.