As a student of the university and as part of the Institute of Computing, it’s a great opportunity for me to be invited to be part of a seminar-workshop on Information Systems planning together with some of our respected faculty and staff.
In one of the session, outsourcing has been discussed. In our Management Information System subject we always encounter and even discussed about outsourcing and the in-source or in-house. But before we conclude of which is better for the university, let us analyze first and discuss the factors and benefits that we can get on both side and what are their disadvantage.
What is outsourcing?
According to my reliable source which is the Wikipedia, outsourcing is subcontracting a process, such as product design or manufacturing, to a third-party company. The decision to outsource is often made in the interest of lowering cost or making better use of time and energy costs, redirecting or conserving energy directed at the competencies of a particular business, or to make more efficient use of land, labor, capital, (information) technology and resources. Outsourcing involves the transfer of the management and/or day-to-day execution of an entire business function to an external service provider. The client organization and the supplier enter into a contractual agreement that defines the transferred services. Under the agreement the supplier acquires the means of production in the form of a transfer of people, assets and other resources from the client. The client agrees to procure the services from the supplier for the term of the contract.
In outsourcing, the external organization would take over on the management of the outsourced function. Outsourcing can be a good help in an organizations in making a better use of their resources, time and even their infrastructure. It would also help maximize your revenue and minimize your expenses, and you can now concentrate on your core business if you choose to outsource your non-core functions.
What is in-source?
From the Wikipedia, In-sourcing is the opposite of outsourcing; that is in-sourcing (or contracting in) is often defined as the delegation of operations or jobs from production within a business to an internal (but 'stand-alone') entity that specializes in that operation. In-sourcing is a business decision that is often made to maintain control of critical production or competencies. An alternate use of the term implies transferring jobs to within the country where the term is used, either by hiring local subcontractors or building a facility. In-sourcing is widely used in an area such as production to reduce costs of taxes, labor, transportation, etc.
When an organization delegates its work to another entity, which is internal yet not a part of the organization, it is termed as in-sourcing. In-sourcing has also come to be described as transferring work from one organization to another organization which is located within the same country or entrust the work to your staff. In-sourcing can also mean an organization building a new business centre or facility which would specialize in a particular service or product.
Outsourcing versus In-sourcing
Now, let us compare outsourcing and in-sourcing. Let us see what are the advantages and disadvantages that we can get if we choose either of the two and which is better to use in an organization. If a certain organization has a number of what we called non-core processes which will take too much time and effort and also resources if we choose to perform in-house, so therefore, it would be better and wiser if we take the other option, which is the outsourcing. Well, in this case, outsourcing would help you and your organization save on manpower, effort and also time. It would be a benefit to your organization or companies in making a quicker delivery and you can have full attention to your customers.
Outsourcing is again a good option if we want to reduce cost and make faster deliverables. There are times that we want to require some expertise services in some areas of our system but then, do not fall under our core competency, so outsourcing will be a better option if you want to get access to expertise services.
If you want to save on transportation costs and you want to exercise a better control over your project, it would be reliable to choose in-sourcing. Usually, in a work that involves production it is always ideal to opt in-sourcing.
Most of the companies nowadays are opting to outsource because of some reasons. They choose to outsource because it enable an organization to access intellectual capital, they can now focus their job on their core competencies, shorten the delivery cycle time, lower the costs significantly and they think that this is an effective business strategy to improve their business and it is more reliable for them.
Some companies rather choose in-sourcing than outsourcing. Other companies shift from outsource to in-house or in-source because they are not satisfied on outsourcing. They opt to in-source to cut down the cost of labor and taxes and they feel that they can have better customer support and better control over the work.
Advantages and disadvantages
After knowing what in-source and outsource is and after comparing the two, lets define what are their advantages and disadvantages. Here are just few benefits that I found on the web that we can have if we opt to outsource and/or in-source.
Advantage of outsourcing…
Less capital expenditure
Outsourcing is an effective way to extend your budget because you can already outsource at a lower cost. Example if you choose to outsource to countries like India, you can have a high-quality services in a lower cost. So it will reduce your organization’s expense.
Concentrate more on your core business
Another benefit in outsourcing is that if you outsource your non-core functions you will be free to concentrate in your core competencies. And your employees can be put into better use.
Make faster deliveries to customers
As I mentioned earlier, if you choose outsourcing you can make quicker deliveries to your customer and because of this you can save your time and effort.
Get access to specialized services
Through outsourcing you can get expert and skilled services. Because of this benefit, several outsourcers choose for outsourcing. Your outsourcing partner can give you a more proficient service and can help you improve your company.
Increased efficiency
Another benefit in outsourcing is the increased in efficiency. If you would be wise enough and choose to outsource your non-core functions which will be performed by your outsourcing partner, you can efficiently carry out your core functions in-house. Through this, you can have an overall efficiency and you can see your company’s profit.
Advantage of In-sourcing…
Greater insight into the internal workings of the company
One advantage of in-sourcing is that you can have a greater insight into the internal workings of the company. You can have a greater output in the development of your information system because you will see what has worked or failed in the past, how the corporate entity operates and most probably you will discover the culture of the entire organization which I guess is essential for you to know.
Speed of the overall development schedule can be increased
In choosing in-sourcing you can speed up the overall development scheduled because the internal key players are known. You can have a better control on the company’s project and a faster development because you will hire person/s with a greater expertise so if problem occurs you can directly consult those people to see what the conflict is.
Great tool that never gets used
Absolutely, if you are to develop a system through in-sourcing you can have a system that can be declared as yours and you don’t have a similar system with other companies. Any project developed in-house will be subject to the level of expertise and competence available within the organization. Therefore, the development of your system depends on the skill and expertise of the persons you put into task.
Development team is very close to the end user
Another benefit of in-sourcing is that the development team are very close with the end user because of this you can have a high quality product for the end user as a result. The relationship between the development team and the user is essential which aids in both communication and expectations on the delivery. The advantage of this is that, not only the user can benefit both even the developers. It increases the business knowledge of the developers which will reduce the time it requires for the specification and design of the project.
Security and confidentiality
In terms of privacy and the security of the company or an organization, in-source has a greater advantage. So, we have lesser worries about the security of the company’s assets, resources and information.
Disadvantages of outsourcing…
Loose the managerial control
When we outsourced, one disadvantage that we should not overlook is the loose of the managerial control. This comes to pass because the fact that it is more difficult to manage the outsourcing service provider as compare to managing one’s own employees.
Hidden Cost
And sometimes we miss to calculate the hidden potential cost of outsourcing which includes the legal cost of having a contract between two companies and the length of time it takes to coordinate the contract which simply means that the overall cost for outsourcing can never be predict and underestimated.
Threat to the security and confidentiality of issues of a company
Another disadvantage of outsourcing is the threat to the security and confidentiality of a company. It is important to be very careful in choosing what function or non-core competencies to outsource and which is not. Systems such us payroll is a private issue in a company which should be kept inside the organization.
Quality Problems
When you outsourced you sign a contract. Sometimes, outsourcing company will be motivated by profit. To be able to increase their profit they lessen the expense considering that they are able to meet the conditions of the contract. Every contract is made very specific so you will pay for the extra changes.
Tied to the Financial Well-Being of another Company
Once you outsource, you will be turning over part of your business operations to your outsourcing company therefore you are tied to the financial well-being of your outsourcing company. So there is a tendency can be the reason of the bankruptcy of your business.
Disadvantage of In-sourcing…
Required strategic flexibility
Required high investment
When we choose to in-source, we hire IT staff to do the maintenance and the development of the system as well. Therefore, it is necessary for a company to have an additional budget for the salary of those experts.
Loss of access to superior products and services offered by potential suppliers
Every IT Personnel has its own expertise. So, if you choose to have in-sourcing you will be limited on what your hired IT Personnel could do and you can’t access the other services offered by potential suppliers.
The university’s situation…
Before we decide what to choose between in-sourcing and outsourcing, it is still better to weigh things according to the university’s situation and the things involved on it. As being part of the university for years, we, students have already encountered a series of different enrollment system. The entire enrollment system includes the registrar, cashier, and the different local offices. Recalling the previous information system used by the university before they adapt the new system (presently used by the university); they choose to develop an information system through outsourcing. They hire an outsourcing company for the school’s information system and the students have to adjust with the outsourced enrollment system. Then later on, the university decided to change from outsourcing to in-house. Now the university hires two IT Personnel who also have an expertise in developing a certain system and are already part of the faculty of the university. I guess the primary reason why the school administration changed is the cost. So, they hire IT faculties to lessen the cost and expense of the school.
When one of our instructors told us that we already have good and highly-skilled professors and staff who have expertise with the said field, why not use them? Well, I agree with him. It is an advantage for the staff to have an extra income and to share their knowledge and skill on the said field and for the university as well to minimize expense of the school. The security and privacy of the school’s information system is kept on the workforce. And of course, this would make us proud that the person who developed our information system are members of the university and it’s a good evidence that our instructors are not only good on sharing their knowledge through class discussions but we can actually see how good they are as they apply their expertise on their field.
My stand…
As what I have understood, there are different reasons why a certain organization prefers to outsourcing and the others would choose in-source. Usually, organizations or companies depends their choice on the benefits that they could get if they select either of the two.
After discussing what in-sourcing and outsourcing, there advantage and disadvantage and after knowing the situation of our university, now, it’s time for me to choose on where should I stand. Well, I base my decision on what I have observed and understand about the two types of sourcing, the in-sourcing and outsourcing. And I go for in-sourcing or in-house.
Basically, first and important thing to be considered is the cost. I don’t really know how big or small the budget of our university for the labor and in developing and maintaining our information system. I have mentioned above that one of the disadvantages of in-sourcing is that it requires high investment which means there is a possibility that it can not totally lessen the cost. But, you can still minimize the expense if you hire one to three IT personnel to do the job. In terms of maintenance, you can still lessen the expense because you don’t have to spend for fair and for the extra changes since the one who will maintain your information system is already part of your workforce (employee). If we outsource, one benefit we could get is the less of capital expenditure. After surfing the internet, many say that through outsourcing you can lessen the cost. Maybe it’s true but we should not overlook its disadvantage. Mentioned earlier is about the hidden cost so you can never predict how low or high the cost of outsourcing is.
When you outsource, you can have a greater insight on the internal working of the company. This is a great advantage because if you need some information that is necessary for the development of an information system you can automatically ask for assistance to the co-employees who know it well. Unlike outsourcing, you just have a contract with the outsourced company will do what are conditions written on the contract for the development of your system but if you want some changes or add some part of the system, there are additional payments which may increase the company’s expense.
I choose in-sourcing because you can have a tool or an information system that has never been used. It’s nice to hear that you will be using your own system that only your company knows how to use it and how the system flows. Most of the outsourced system services are shared. This means that it’s not only your company is using that kind of information system. If many knows or familiar with the use and the flow of your information system, then this may threaten the security of the important information of the company.
We have our own choices. We have our own beliefs of what is best for our company. Both have its advantage and disadvantage. If we think well as an expert, it is better to weigh and analyze first which would be the best for the organization and where you can benefit more for the success of your company. But it is not totally necessary to choose between outsourcing and in-sourcing. You can in-source and at the same time outsource. But be careful on choosing what function should be outsourced or in-sourced. It would be a benefit for your company if your have both so that you can have the best of what both offers to be able to achieve the goal of your company.
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