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Outsourcing: How Dangerous?

Posted May 15, 2011 4:00 PM

The principle behind outsourcing is that third-party companies can perform certain functions more efficiently or more cost effectively. Some experts, however, assert that outsourcing can leave a company without core competencies. Not only that, they suggest that the use of outside contractors raises the risk of cyber attacks. With security a growing threat, will companies begin to rethink their outsourcing strategies? What precautions can be taken to reduce security threats through outside contractors?

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#1

Re: Outsourcing: How Dangerous?

05/16/2011 4:36 AM

Outsourcing? Dangerous? How can anyone say that? Just ask Sun Microsystems how well it works!! Oh I forgot, they blew up and got taken over by Oracle!! I wonder why?

When Sun bought out StorageTek (STK), we told them how an in-sourcing company works, the top management from Sun were most "sniffy" at being told how STK needed to be run.....advice not heeded.....

STK was taken over by Sun for 4.7bn$ in May 2005.

Oracle took over Sun in April 2009 for 7.4bn$.....

Take one from the other and you can see in a simplified manner just how Sun ran itself into the ground trying to turn STK into an outsourcing company, the STK customers left in droves.....end result was "Unhappiness" - according to Mr Micawber of Charles Dickens fame.....

To me personally, outsourcing is the worst system for any service industry. Customers don't want to discuss problems with 2, 3 or even 4 different service suppliers. They want one company to take on the problem for them, no matter where the problem lies.....

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#3
In reply to #1

Re: Outsourcing: How Dangerous?

05/16/2011 11:24 AM

Hmm, I am not sure your point is valid about the valuation of one company in 2005 relative to the other in 2009, considering the economic decline and devaluation of assets during that period. It kind of sounds like you are atempting a "card trick" with the information, as if the readers were not expected to be astute enough to recognize the severe recession that was occurring in 2009 realtive to the over-valued markets (bubble) that was occuring in 2005.

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#4
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Re: Outsourcing: How Dangerous?

05/16/2011 4:33 PM

The major difference being that I worked for the first two companies, I saw the problems, and tried to address them, from the inside - speaking to customers and what their feelings were.....

As one man, all STK customers were horrified.....Sun customers came to STK for help before Sun bought STK.....they wanted a single source of help.....

The outside influences obviously did not help, but they were not the reason.

I was surprised that Sun did not collapse even earlier than they did.

Using relative values is always dangerous as its not a well defined subject, but I have been personally able to glean some good infos and trends by reading between the lines....I am sure that I am nothing special either.....

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#5
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Re: Outsourcing: How Dangerous?

05/16/2011 7:39 PM

Relative values are not all that dangerous and it is fairly well defined (though barely employed properly outside of large scale governemnt feasibility studies which have substantial scrutiny). There are standard adjustments applied to account for changes in market values, the valuation of money, labor, materials, fixed assets like land values can all be standardized and the valuation fixed to a standard year, like I can project valuation in terms of 2011 $ for earnings made in 1980 based on the change in the labor market and the valuation of money. This would be a standard engineering practice to evaluating life cycle costs. For example in labor markets you would take the salaries of other local companies that were similar and compare different labors groups changes over time, then apply those grouping estimates to the labor cost of the company, same for materials costs and land values, and then correct for the change in the value of money. Depending upon how much real property they owned, they could have taken a huge loss in valuation solely based on the decline in their holdings in the land markets. If you own enough office and manufacturing buldings that were valued a multi-millions in 2005, and now are 1/4 of a million, your company valuation can take a serious decline.

As far as customer service, well that is a different subject. Sometimes it has an effect on companies, but other not so much, look at Walmart. Of course Walmart doesn't claim great customer service they claim great prices, so people don't have expectations for customer service that are unreasonably higher than would be delivered. I am not aware, so it would be helpful to know if Sun Microsystems was claiming to be one of the best in customer service in the industry?

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#6
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Re: Outsourcing: How Dangerous?

05/17/2011 5:21 AM

Sun outsourced as good as everything, even all the basic levels of tech support.

They were the least interested computer company in customer service that I have ever seen, worked with (before the takeover) and worked for (after the takeover).....

What they basically did was to buy a company for 4.7 bn$ and scare every single customer away from that company with their policies and wondered why less than 4 years later that they were financially inviable.

The competence of the Sun management was simply awful, "if it cost money, outsource it!!!"

I worked with many of their top tech support, very clever and competent people, that were not allowed to work in a correct manner by the incompetent management......the management mixed in on technical problems that they did not understand and say "it's simply not so!".....

They also had a "Hire & Fire" policy that kept their people scared of losing their jobs......that was another policy 180° to STK's policy.....

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#2

Re: Outsourcing: How Dangerous?

05/16/2011 6:41 AM

I'm by no means an expert on the subject but can say something about my experiences working in the telephone industry from 1964 to 1983. During that period we did everything in house. Quality was excellent and employee pride high. Also everthing was tightly sealed sort of like the CIA. Instructors held classes and trained us as new tecnologies came along. The classes also helped bond the employees like a big family.

Outsourcing came along and from my perspective quality dropped along with employee pride and moral. The company may have saved some money but I think it was a net loss overall.

John

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#7

Re: Outsourcing: How Dangerous?

05/23/2011 10:51 AM

I have seen an unbelievable amount of engineering for system design being outsourced. I think it can be very dangerous when this engineering work is going overseas to India or China. If you are a US company and you outsource your engineering or support to a US company, it's only dangerous when you haven't properly researched your suppliers. Here are the issues I've seen with overseas outsourcing.

1. Technology - There is almost always a lack of knowledge of newer technology. An Indian based firm might think that adding Ethernet to a control system type product is not needed in today's market or not knowing what your US competition is offering in terms of features and capabilities.

2. Front-end Development - I've seen projects take several months overseas that would take a better than average US company a few weeks. Even if it is still cheaper, you are sacrificing the time to get your product to market. Just look at iPhones vs Androids. Android was a little late with its product and now they are still scrambling to compete.

3. Miscommunication - 8-12 hr time difference and a language barrier means wasted time. Waiting a day for a reply to an email or a returned phone call, 3AM conference calls with the China support staff can hinder productivity.

4. Destruction of US Workforce...Economy? - I am not a Pro-Union person, but it is a fact that the more we ship jobs overseas the less jobs are available for US workers. Less people working means less demand for your goods and services. I also believe profiting is not bad, but when you sacrifice quality and workmanship to increase the bottom-line no one profits.

If you want to reduce overhead and liability by outsourcing, go ahead. Just do it locally. Look at your long term goals and rationalize what your true cost are going be and base your decisions on that. Too often these days, management is only looking at short-term cost and looking for ways to cash out.

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