pros & cons of outsourcing

Third Party Service Providers (TPSPs)

• Usually TPSP already has expertise and experience with other clients in similar business lines.
• Very competitive pricing / flexibility to assess various TPSPs
• No infrastructural / capital investment.
• Payback period very less (usually between 6 months to a year).
• Flexibility to source multiple TPSPs.
• Flexibility to scale up and down business relationship.
• Can exit from one relationship and move to another .
• Retains decision-making, therefore relationship with TPSP is clear (fee-based, quality-based); no staff backlash.
• As TPSP works towards a profit there is more business commitment.
• Customised solutions ensure data security and safety.

Captive centres

• Build expertise from scratch by redeploying resources. Latter option more expensive.
• Unit costs higher.
• High capital investment.
• Payback usually between 3 and 5 years.
• Committed to bringing in economies of scale, hence the need to establish a sufficiently large centre.
• Committed resources reduces such flexibility, else training costs could shoot through the roof.
• No exit possible without incurring high costs.
• May or may not retain decision-making. Possibility of backlash from senior management personnel.
• Captive units are usually cost centres.
• Long-term strategy looks for establishing centres to first move work as-is, and save costs first.

pros & cons of outsourcing to third party vendors

Advantages

• Focus on core business issues.
• Benefit from best-of-breed solutions.
• Better quality at lower costs.
• Better process maturity, resource flexibility and economies of scale.
• Flexibility in deploying new technology.
• Quick wins with outsourcing.

Disadvantages

• Burden of excess capacity or challenge of insufficient capacity is done away with.
• High unit personnel cost.
• Tight business margins.
• Not enough financial muscle to sustain very tight payback periods.

pros & cons of outsourcing to a captive centre

Advantages

• Securing data is less complicated.
• Capture margins that would otherwise go a TPSP.
• Decision making authority contained within the organisation.
• Tighter management control.

Disadvantages

• Expensive specialist skill in host countries.
• Compliance and legal restrictions.
• Unavailability of skilled manpower due to market stagnation.
• Requires considerable effort in terms of management's time and attention to establish

Source: neoIT