Outsourcing

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March 01, 2006
CounterPoint
Patrick Sciascia

© 2006 Hospitality Upgrade. No reproduction without written permission.

In today’s marketplace, the hospitality technology industry in general experiences high levels of competition and demand. Software development companies strive to offer feature rich and reliable software applications and services at competitive prices while trying to maintain margins. Some key players would argue that outsourcing their IT development is the key to their success. Outsourcing IT development can be better understood as the act of entrusting service provision or production to an external party, with the objective of reducing capital expenditure, increasing productivity, while at the same time allowing managers to focus on the company’s core competencies. However, these benefits are only true for a specific type and size of company. For others, such as Posera Software Inc., a company that specializes in developing software for the hospitality industry, they consider their expertise in software development to be their core competency and responsible for granting them a large competitive advantage in the hospitality industry. Companies, similar to Posera, believe in strengthening the business areas that they specialize in, such as development, and in turn prefer to continually improve on this expertise for long term success.

For technology companies like Posera, mission statements revolve around ideas such as developing high quality software solutions that meet current customer needs as well as anticipate future requirements in order to be competitive and surpass customer expectations. All of these factors combined ensure the long term success of the company. Priorities also often include high levels of customer service, essential criteria in the hospitality technology industry. In order to effectively meet these objectives and goals, outsourcing software development is not a viable option. Posera deems it necessary to keep full control over all software projects in order to guarantee the quality of its software applications, ensure that standards are effectively met, and make certain that deliverables are on time.

It can be said that by outsourcing development, you will inevitably lose control over a project or at least over the part that you have chosen to outsource. This loss of control usually occurs as it is more difficult to manage the outsourcing service provider as compared to managing one’s own employees. Outsourcing is often a problem for managers who have little or no experience with it as it is unavoidable that the outsourcing service providers will for the most part take controlat least partial controlover the outsourcing projects they are given. Although they do not intend to abuse the confidence reposed in them by their customers, almost all outsource service providers place the highest emphasis on the most lucrative projects for their business while at the same time trying to accumulate as many projects as they can, not always giving each project the necessary attention it deserves.

While cost savings constitutes one of the major reasons why a company goes for outsourcing, Posera possesses in-house expertise and the budget necessary to implement vital IT development projects, therefore outsourcing it in full or in part to an outside company is not an advantageous or worthwhile solution. This especially proves true when you consider and account for the hidden costs of outsourcing, which include the legal costs of putting a contract together between companies and the time spent on coordinating the contracts. The hidden and unforeseen costs of outsourcing are difficult to predict which often causes overall costs to be underestimated. The time and skills required to manage outsourced projects is also often underestimated. Outsourcing an IT project involves the analysis of requirements, outlining an implementation schedule, the investment of time and resources, researching vendors, and strong management skills. In its decision to keep product development internal, Posera also considers the loss of talent that could be potentially generated, internally depriving employees from the experience they would have gained by handling the business issue or project themselves then by passing it over to an external party.

Outsourcing may also result in the possible loss of flexibility in reacting to changing business conditions, as well as a lack of internal and external customer focus and of sharing cost savings, all of which are major issues that take precedence for Posera as they directly affect customer service and satisfaction. It is also important to consider that outsourcing can prove to be a threat to the security and confidentiality of a company's issues; hence the importance of having appropriate legal contracts.

Finally, when turning to outsourcing development it is usually difficult to avoid the inherent problems of communication. Communicating via telephone conversations, e-mail and instant messaging programs can take up more time than anticipated. Moreover, if you are dealing with an overseas vendor, the time zone problem will surely arise the difference between your vendor and you may be seven hours or more, as well as language and/or cultural problems might contribute to miscommunications.



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