ICT outsourcing can be said as one of the current trends for companies around the world to contract ICT tasks and business processes to professionals anywhere in the globe. It is likely that ICT outsourcing started in the early 1990s where Kodak used external partner to handle its ICT resources. It was believed that Kodak did not have the expertise in ICT that they had to hire another company to help them handle their ICT needs.
This development occurs because companies would like to focus on their core business functions while outsourcing the non-core functions to experts to handle. This business model was tested and it was discovered that it helped minimize long term cost of hiring new ICT staff, train and retain over a period of time before they get a firm grip of the requirements of the job. ICT outsourcing has bridged the gap and helped companies save more money and time in the long run.
In Malaysia, ICT outsourcing is evolving as many companies are beginning to see its opportunities and benefits. After about 20 years, outsourcing is now needed by a lot of companies mostly at back-office processes and customer support. The Malaysian government in conjunction with a lot of non-governmental agencies is developing internal management systems to make this work. The government is investing massively in the computerization of its government ministries and agencies in order to boost its capacity and responsiveness to the people of Malaysia.
Presently, Malaysia is known as an ICT outsourcing hub of the world where it is currently ranked third globally behind China and India in the outsourcing industry. This shows how significant outsourcing is to developing countries in the Asian region. It’s obvious that outsourcing ICT has received so much attention and has become globally widespread; Malaysia has positioned itself as a big player and is doing all to retain it.
Outsourcing is simply the process of contracting part of the organization's business process to a third party that has the specific skills to deliver the required backup services at a fee. Outsourcing is usually a contractual agreement between the two parties where terms of engagement would have to be spelt out clearly. The third party must have the skills needed by the company so that the outcome of the outsourced job is met.
Outsourcing can also be explained as the contracting of one or many business functions of a company including its assets to an outside service provider who gives a defined service for an agreed duration of time and payment on a written agreement. These definitions give a precise direction of what outsourcing entails and the responsibility of both parties. However, we can further deduce what to expect from outsourcing with the following characteristics:
1. A company transferring one or many business process to a third party.
2. A third party has the skills and services required for the business process.
3. Has an agreement or contract between the two parties on the fee and expected outcome.
4. A specified duration of contractual agreement which could be renewable
5. The meeting point between the two party in term of deliverables and obligations.
Wise Geek in one of its publication stated that there are four types of outsourcing services which includes; professional, manufacturing, process-specific and operational. Each of these outsourcing services have earned its popularity as more companies are looking to reduce their overheads by adopting one or more of these services.
Outsourcing also can be total or selective.
Total outsourcing is where the IT budget being used to pay the external vendors is approximately 80% or more than the total. For outsourcing activities that only took less than 80% from the total IT budget. Selective outsourcing as it is named specifies that the company will select only one or a few IT functions to be outsourced to a third party.
Aside from these two main outsourcing types, there are also other types of outsourcing that are usually the derived from these two main types transitional and insourcing outsourcing.
For professional outsourcing services as earlier mentioned, this kind of service include professional services like legal, administration, PR, accounting, inventory management, information technology support and other specialized services. This is where you find outsourcing being utilized best because of the potential of saving money in the long run while focusing on the core areas of business.
The business only deals and pays for what it needs as its overhead costs are reduced reasonably. Outsourcing for manufacturers is usually industry-related.
For example, a carbonated soft drink bottling company may choose to outsource the production of its bottle cork to a third party manufacturer if it would cost so much to set up a production line for it. Also, a generator manufacturer may outsource the production of fuel injectors to an expert company to do that for same reason of avoiding to install a production line.
Inherent risks, challenges and issues
Depending on the scope, cost implications, data security and operational model, outsourcing needs to be thought out carefully. Before you decide to outsource, it’s advisable to sit down and review your business processes to know what can be contracted to a third party or reserved internally.
The decision to give off part of your business process to a third party is critical. Expect that it may not be absolutely hitch free most especially in the transition process.
There would have to be a mid-point between you and the third-party. The seamless transition would largely depend on the professionalism of the third party and how he is handling the process.
On your own part, the willingness to be a good team player and information provider with make the job of the third party easier. However it’s important to note that there would be risks involved with this process; issues would emanate and the process may pose some challenges.
Let’s find out the inherent risks, challenges and issues involved with outsourcing ICT in recent times: Outsourcing affects an organization’s culture, flexibility, tolerance, cash position and its overall bottom line so it’s important to consider all these changes that are bound to occur.
The risk of providing poor and unreliable service can ruin the whole outsourcing objective. This is related to the responsiveness of the outsourcing party. It would be risky to go into a contractual agreement with a third party that is unreliable and not able to meet up with services according to the contract. Before a company goes into a contractual agreement with a third party, it’s important that the company needs to look for reviews either online or by word of mouth on the outsourcing party.
Security – The risk of porous infrastructure is a very crucial factor since ICT will be involving a lot of data sharing and would need data security.
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