GLOBAL OUTSOURCING AND FINANCIAL IMPACTS

Executive Summary

Today outsourcing and offshoring is a common practice in the

business world. There are many reasons to do so, most of all

assumed financial rewards; the other is speed to service and better

support or quality. Prior reports show that outsourcing has

financial advantages, but these studies are based on theory or self

reported statistics. Without hard financial proof from financial

documents, its hard to make the claim outsourcing is financial

advantageous. As for the other reason for outsourcing, speed and

quality, then why would the companies that have outsourced move

the other direction and insource? One reason is quality was lacking

or hidden costs that made it less financially advantageous to

continue the outsourcing model.

Beyond looking at the risks, advantages, and financial gains,

companies grab on to pervious studies and move forward with

outsourcing. After analyzing the data it was found that outsourcing

challenges are common no matter the industry. This observation

was also evident when the financial data was analyzed. Showing

no significant increases. The financial trends were consistent

across most of the companies studied no matter the industry or

service. The biggest thing to note is that outsourcing as a whole

using GAAP financial data has little to no effect on financial gains.

Another consideration that is missed or never quantified is the loss

of knowledge and proprietary information (IP). When companies

outsource it removes the core of the unit and removes that

knowledge base of those core functions of a unit, in a sense

hollowing out the organization. The people left behind are now

responsible to train and manage the functions of the outsourcing

company taking over those tasks that a unit completed as a team,

leaving a fragmented work environment. With the knowledge gone

this hampers the ability to do a good knowledge transfer to the

incoming outsourcing companies recourses. A potential problem

with the knowledge transfer is there may be a culture or language

barrier, or better yet lack the same skill set of the resource lost in

the outsourcing venture.

When considering outsourcing an in-depth look at the company

strategy and how well outsourcing fits into that strategy. If

considering non-core functions to outsource ensure that those

functions will not become core tomorrow. Security is another

concern. Therefore, a SWOT like analysis should be conducted to

determine if outsourcing is right for the company and units

considered for outsourcing.