In chapter 12, Outsourcing “Managing Interorganizational Relations” the text references some of the advantages and disadvantages of outsourcing project work. Below are the abbreviated points the text makes:
For the advantages they mention:
1. Cost reduction. Companies can secure competitive prices for contracted services,
especially if the work can be outsourced offshore.
2. Faster project completion. Not only can work be done more cheaply, but it can
also be done faster. Competitive pricing means more resources for the dollar.
For example, you can hire three Indian software engineers for the price of one
American software engineer.
3. High level of expertise. A high level of expertise and technology can be brought
to bear on the project. A company no longer has to keep up with technological
advances. Instead, it can focus on developing its core competencies and hire
firms with the know-how to work on relevant segments of the project.
4. Flexibility. Organizations are no longer constrained by their own resources but
can pursue a wide range of projects by combining their resources with talents
of other companies.
For the disadvantages they mention:
1. Coordination breakdowns. Coordination of professionals from different organizations
can be challenging, especially if the project work requires close collaboration
and mutual adjustment. Breakdowns are exacerbated by physical
separation with people working in different buildings, different cities, if not different
2. Loss of control. There is potential loss of control over the project. The core
team depends on other organizations that they have no direct authority over.
While long-term survival of participating organizations depends on performance,
a project may falter when one partner fails to deliver.
3. Conflict. Projects are more prone to interpersonal conflict since the different
participants do not share the same values, priorities, and culture. Trust, which
is essential to project success, can be difficult to forge when interactions are limited
and people come from different organizations.
4. Security issues. Depending on the nature of the project, trade and business secrets
may be revealed. This can be problematic if the contractor also works for
your competitor. Confidentiality is another concern and companies have to be
very careful when outsourcing processes like payroll, medical transcriptions,
and insurance information.
I liked the comparison and contrast of both the benefits and the costs of outsourcing. In my industry we have outsourced much of, if not all of, our IT support for network issues. I understand the company wanting to reduce cost and such, but there is the much bigger issue, the loss of our internal high level expertise. When we have network issues at our local plant database we have to go to our outsourced IT folks who hardly speak English and take two to three hours to resolve the problem, each time there is a problem. It frustrates me but I understand, why we use them. We want to focus on our core competencies, and IT is not one of them. Does your company use outsourcing? If so do you feel it helps your company focus on the issues they need to concentrate on enchaining?