Managing the Risks of Outsourcing Agreements

Critical review – Outsourcing: a paradigm shift

“…The options range from handing over complete IT operations, to pay-as-you-go for a single application outsourcing. Notwithstanding the options, strong business ties and dependencies are often forged between the two companies, and whilst partnerships can solve some workload issues, the biggest problem they face is how to make these relationships more painless and more collaborative (Klein, 1999 Outsourcing offers several advantages, such as enabling existing staff to concentrate on core activities on organisational specialisations, focusing on achieving key strategic objectives, lowering or stabilising overhead costs, and thereby gaining cost advantage over the competition, providing flexibility in response to changing market conditions, and reducing investment in high technology (Kliem, 1999;Quinn 1999). Crucially, outsourcing can provide companies with greater capacity for flexibility, especially in the purchase of rapidly developing new technologies, fashion goods, or the myriad components of complex systems (Carlson, 1989;Harrison, 1994).…”

“…However, there exist several disadvantages to adopting outsourcing strategies. These include becoming dependent on outside suppliers for services, failing to realise the purported hidden cost savings to outsourcing, losing control over critical functions, having to face the prospect of managing relationships that go wrong and lowering the morale of permanent employees (Currie and Willcocks, 1997;Kliem, 1999). Moreover, outsourcing can generate new risks, such as the loss of critical skills or developing the wrong skills, the loss of cross-functional skills, and the loss of control over suppliers (Quinn and Hilmer, 1994;Domberger, 1998).…”

“…Outsourcing has been viewed as a form of predetermined external provision with another enterprise for the delivery of goods and/or services that would previously have been offered in-house (Elfing and Baven, 1994;Domberger, 1998;Kliem, 1999;Finlay and King, 1999). Outsourcing practice dates back to eighteenth-century England and has been in continuous use in numerous industry sectors since it received impetus in the latter half of the 1980s and 1990s in the emerging service sector (Whang, 1992;Quinn and Hilmer, 1994;Reyniers and Tapiero, 1995;Cheon et al, 1995;Ang and Straub, 1998).…”

Understanding software project risk: a cluster analysis

“…It has been suggested that outsourcing is risky, especially when compared to in-house sourcing [14,19,32,48]. However, there has been no empirical effort to examine the implications of outsourcing on project risk [18].…”

Sourcing strategies, practices and effects on organisational performance

“…However, there are disadvantages in adopting buy strategy as it can make a firm dependent on outside suppliers, fail to realise the purported hidden cost saving to outsourcing, losing control over critical functions and lowering the morale of permanent employees (Kliem, 1999;Tsai et al, 2008).…”