Industrial production, contracting, subcontracting and contracting out have been defining features of modern organisational forms since the industrial revolution and perhaps prior.
Two main organisational forms have prevailed in the modern era:
- Vertical integration, managing and owning the whole value chain process from procurement of raw materials through to production of end product.
- Horizontal specialisation, focusing on crafting/creating/delivering excellence at once core stage of the process of production before passing the processed good onto another stage.
- Fordist manufacturing created conditions for interfaces between different tasks, activity, input, output, or stages of transformation making up the manufacturing process.
- Japanese Kanban system is one extreme of layered specialisation from many small suppliers coming together under the umbrella of the main supplier/contractor/manufacturer in the manufacturing environment.
- Inter-firm information/data process specialisation was enabled by EDI (Electronic Data Interchange) standardisation initiatives from the 1970s through to the turn of the century, now continuing under the aegis of XML and newer standards.
Along the way it demonstrated the overcoming of geographical, spatial and temporal barriers to data exchange.
The modern global supply chain is an extreme case whereby a process’s implementation is facilitated by data exchange between a diverse array of firms thereby creating the very possibility of an integrated supply chain.
As an outsourcing destination Ireland has lost appeal throughout the last decade.
Rising costs and competition from developing countries has eroded many of the advantages that Ireland once held.
Consequently Ireland has itself become a net consumer of outsourcing services.
A driver of this trend is the steady erosion in competitiveness in Ireland at country level, a trend which has been in place since the mid-1990s.
The Irish Central bank quarterly bulletin January 2010 provides harmonised competitveness indicators (HCIs) for the Irish economy. Cost driven deterioration in Irish competitiveness has been partially compensated for by increases in productivity but only it appears by shifting lower cost lower value added activities and processes offshore.
The picture for IT outsourcing is however less clear as Irish based offices of multinationals move up the value chain.
Like all mature markets Irish firms and multinationals based in Ireland often outsource organisational function activities to local or international-based outsourcing providers; for example traditional areas like payroll, accounting, finance, legal, HR, purchasing, and logistics, but also such as marketing focused on SEO (search engine optimisation), web development, website hosting, IT services like e-mail and spam filtering, virtualised storage, and telephony services.
Core or primary value processes may also be outsourced but at a higher risk or for reasons other than cost reduction alone.
Whether providers of outsourced services based in Ireland themselves source their activities offshore or not is a matter for their own operations.
Claims for the size of Ireland destined outsourcing activities and Ireland generated outsourcing vary, range widely between 100s of millions and billions.
Helpdesk and international call centre operations is one area where firms still see value in Irish based operations, particularly where multilingual skills and addressing the European market are important requirements.
In 2003, the value of the outsourcing market in Ireland passed €209 million ($234 million).
Irish banks have outsourced considerable operational activities to third-party providers (e.g. Bank of Ireland's multi-year deal with HP followed by the switch to IBM).
The public sector in Ireland also has long experience with outsourcing services particularly IT (e.g. The Irish Revenue Commissioners and Accenture).
Regardless of the provisioning destination (whether onshore or offshore) the trend is for organisations to increase the investment in outsourcing projects.
Even so firms experience with the outsourcing phenomenon is mixed as expectations to deliver higher levels of service grow and priorities change from simple cost reduction towards valued added.
Regardless of the experience with individual projects outsourcing is likely to remain a popular option with over half CIOs in Irish firms having budgets cut in 2009, cost saving will remain a huge driver or outsourcing initiatives.
HP Video Podcast: Be "on the business" for strategic IT and outsourcing
Tim Hynes, IT Director Europe, Middle East & Africa, Microsoft
