Technology outsourcing is the process of having part or all your technology functions performed by a third-party firm. You need to consider all risks involved before you fire your technology staff and outsource you technology support functions to reduce costs. A study performed by the University of Missouri in 2000 reported that more than 35 percent of the outsourcing arrangements failed. 1. What I advise is selective outsourcing. Keep enough of your expertise in-house, outsource what makes sense.
The main areas of concern are dependency and lack of control, information security and legal issues. Once you fire all your technology staff and make the switch, it becomes very difficult to change your mind, make changes or seek a new partner. The third party vendor will hold all the cards and you no longer have any in-house expertise. They in effect have all the power. The third party vendor can raise fees as contracts expire and you have no leverage to negotiate.
Dependency and Lack of Control – The first thing you loose when you outsource is control. The ability to make changes to the network, systems or any technology or service is greatly limited and may require a new contract.
Information Security – Any emails, documents, client lists, financials, documented competitive advantages, trade secrets, projects in the works are now in the hands of a third party. Any breach of your data can have severe detrimental impact on your image, company status and financial health. You have no way to know if the third party is taking proper steps to safeguards your data or are cutting their costs. Your data can easily be mishandled, lost or stolen and you may never be notified for fear of retribution. They may even use sub-contractors that have no interest in protecting your data and who may see an opportunity to make a quick profit from your private data files. This happens more with non-US based firms especially in India.
Legal Consequences – The legal consequences are the greatest threat to an organization that outsources its infrastructure. Most outsourcing firms offer services on a “as is” basis meaning they are not liable for the results of their services. If there is a breach of confidentiality, loss of data, the outsourcing firm is not liable.
Fiduciary Requirements – Any fiduciary requirements that you may have with your clients do not apply to a third party vendor. A careful assessment has to be reviewed of the risks before proceeding with a third party vendor.
Copyright Infringement – Copyright infringement is another potential liability when software is shared with the outsourced firm.
Conclusion
What I recommend is selective outsourcing. Keep the key knowledge in house and have a local outsourcing firm do the heavy lifting. Partner with a local credible technology firm that has as much to gain as you do from the arrangement. Speak to as many clients of the third party as possible who are in the same industry and are of similar size. You can always contact us and we will be happy to give you a free consultation and or point you in the right direction!
Endnotes
1. Gay, Charles E.; James Essinger; Inside Outsourcing: The Insider’s Guide to Managing Strategic Sourcing, London, Nicholas Brealey Publishing, 2000
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