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Offshore outsourcing (Risks (1.Degree of expertise in outsourcing and IT…
Offshore outsourcing
Risks
1.Degree of expertise in outsourcing and IT operations on both client and vendor side;
- other transaction related risk factors such as availability of suppliers,
- asset specificity issues including investments on vendor side (such as training of vendor or client personnel; modification of processes to accommodate clients tools and systems; investment in equipment, hardware etc.) as well as client side investments on contracts or contractual amendments, etc.,
- uncertainty (due to imperfect information regarding market demand as well as technological changes and breakthroughs),
- relatedness (interdependence of systems and processes that are outsourced), and
- measurement problems (differences in interpretations of performance)
- loss of institutional knowledge (the chance that knowledge in the enterprise will eventually be lost as employees are displaced or retrained in reorganization),
- loss of control over outsourced functions.
When outsourcing is carried out with an offshore vendor it poses additional risks such as cultural differences, language barriers, and geographical and time zone related barriers
Risk resulting in undesirable outcomes:
- unexpected escalated costs,
- disputes and litigations,
- lock-ins, and
- loss of organizational competencies
Recent risks:
- data security protection /confidentiality issues
e-commerce priorities when engaging with a third party is:
- risk management,
- disaster recovery,
- security
- privacy
Other challenges:
- client-vendor relationships
- war, civil unrest or other turmoil in the host country
Long term losses
- key areas of expertise may be gradually lost to the outsourcing organization
- outside providers may not have the desired leading edge expertise over the long-term
- spread their expertise among many clients so that it degrades from core competency to mere industry standard
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Vendor selection
- ensure vendor’s possess the right capabilities
- IT skills are not outdated.
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Advantages
- mechanism to integrate IS knowledge from IS vendors
- Knowledge sharing by both, client and supplier sides, is considered to be a success factor in outsourcing
- Risk: Loss of internal know-how & intellectual property
Offshore outsourcing, defined as:
- the delegation of non-core operations or jobs
- from internal production within a business
- to an external entity (such as a subcontractor)
- in another country where the product or service will be sold or consumed