Pros & cons of outsourcing

What are the 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.

Source: neoIT

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