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Planning and Managing IT Infrastructure

Notes outsourcing contract with CSC following its acquisition of AMP General Insurance. These
examples illustrate the need to include terms of disengagement in the original contract to avoid
spending excessive time and money in court.

4.4.3 Negative Impact on Customer Relationships and Satisfaction
Outsourcing can greatly reduce the amount of direct communication between a company and its
customers. This prevents a company from building solid relationships with its customers, and
often leads to dissatisfaction on one or both sides.

Example: Based on an unusually heavy volume of customer complaints, Dell decided to
stop routing U.S. technical support calls for its OptPlex and Latitude notebook computers to a
call centre in Bangalore, India. Dell customers complained of language difficulties and delays in
reaching senior technicians when speaking to support personnel. The drop in customer satisfaction
was noticeable enough to be measured and reported by both Consumer Reports and Technology
Business Research.

4.4.4 Data Security and Integrity Issues

Another key outsourcing issue is concern over maintaining data security and integrity to
safeguard against data security lapses.

Example: The state of Florida contracted work on its payroll and human resources
system to Convergys, a US-based outsourcing service company. Convergys, in turn,
subcontracted work to index state personnel files to GDXdata, another US-based firm. GDXdata
allegedly outsourced the indexing work to a firm in India, a violation of the GDXdata contract
with Convergys. Florida state employees had to be warned that their personal data might have
been compromised, including sensitive information about the state’s law enforcement agents.
Besides the security issues, this example illustrates the need for outsourcing firms to put limits
on additional outsourcing and subcontracting.
4.4.5 Special Issues Associated with Offshore Outsourcing

Firms that consider establishing offshore outsourcing agreements must be aware that major
differences between outsourcing and offshore outsourcing must be taken into account. The most
obvious issues are how to control and manage the work being performed when your outsourcing
partner may not speak your language and is guided by different cultural values and industry
standards. This issue is only intensified by thousands of miles of separation across multiple time
zones and the extreme difficulty of meeting face to face. Such separation creates a high potential
for lost productivity due to communication problems and increased opportunity for
misunderstandings.
Other issues also are associated with offshore outsourcing:
 Cost advantage: Salaries in developing countries such as China, India, Latin America, and
the Philippines are increasing at more than 15 percent per year. At these rates, the cost
advantage to outsource to such countries is being reduced.
 Turnover: The rate of employee turnover is as high as 50 percent at outsourcing firms in
some countries. Thus, there is a high potential that key employees at the service provider
for your account or project might leave, causing significant project disruptions or delays.

 Intellectual property rights: Various countries have widely divergent stances on the
protection of corporate data, copyrights, patents and trade secrets. Not only must you
consider whether the country has laws to protect your firm’s intellectual property, you
must ask whether the laws are enforced.

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