Increasing Outsourcing of IT-Intensive Functions

The need to cut costs while maintaining excellent quality in the business world has driven many companies to assess their in-house activities to identify if there is a possibility to outsource the non-core work and concentrate on core issues. Many companies now believe that knowing their consumer market and tailoring products for it are the most important aspects of running a competitive business and that everything else has the potential to be outsourced at a lower cost than if internal. This means that functions such as human resources, procurement, finance and accounting systems are being undertaken in other parts of the world and at an alarming rate - a 9.7% increase is expected this year (Phillips, 2005).

It seems that for companies to remain competitive, they need to focus on what gains them an advantage over their rivals and outsource as many activities as possible. I don't think this is a particularly good situation for employment in this country as specialist activities can be performed elsewhere, with one Indian businessman stating that anything can be outsourced “if it's the type of work that can be done over a wire.”

I do believe this comment is valid and we are already seeing many examples of this happening – some Indian companies now specialise in taxation laws therefore small and medium sized businesses who do not have their own tax specialists can ship the work abroad. I was surprised to learn that so many small companies are involved in this type of process – a small insolvency practice located in Glasgow scan many of their documents and email them to India where the information is processed, all at a lower cost than would be possible here. Along with the lower labour costs, the decreasing cost of communication is one of the main reasons outsourcing is a viable business strategy – instant messaging can be free, and long-distance telephone calls are continually falling in price.

An alternative take on the reason for executives choosing outsourcing is that after recent financial scandals, companies do not wish to perform activities that may lead to future legal action and damage their reputation. This had led to a drop in the number of applicants to universities in affected subjects in the US, particularly Information Technology where there are many opportunities to outsource the work to India where the education on this topic is often more advanced. I do not think we will see the same trend in students applying to UK business schools, at least not in the near future, as I think the courses will be tailored to suit the needs of the companies recruiting the graduates in this country, and there are still many job opportunities in the UK business/service sector.

It never actually occurred to me that outsourcing of professional functions like tax calculation was feasible but I now know that almost all jobs in the service sector are at risk. Peter Cappelli, a director at University of Pennsylvania has stated that any service which can be considered a commodity has the potential to go overseas – some believe that the audit is turning into a commodity so will it be outsourced? This may affect my future career choice within the accounting profession – at the moment I cannot see an opportunity for forensic accounting to be outsourced as it often involves on-site work, however, I will not disregard this possibility.


Bibliography

Phillips, S. (2005) "Businesses Think the Unthinkable", Financial Times, FT Digital Business, 5th October, p.9.
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