July 05, 2005
Share Prices Increase with Announcement of Outsourcing
The Centre for Economic and Business Research and IT services firm LogicaCMG have recently released a report indicating the positive and negative effects of outsourcing. The report indicated that share prices on average are 1.7 percent higher one month after the announcement that a company would contract with an outsourcing firm relative to the stock price of rivals. Firms that explained the rationale behind their outsourcing move saw even greater relative stock price increases. For this reason alone, many large companies might consider a small but public entry into outsourcing. However, the report warns that not all the effects of outsourcing are positive. Regarding the computer desktop support industry in particular, the long-term effects of outsourcing can be quite negative. Because some support outsourcers charge fees for some customer support requests, or because they may not provide the same level of support as they did formerly, they may gain a reputation as providing poor support. This may ultimately hurt the reputation of the product and the firm. vnunet.com Reports:
"Outsourcers introduce formal processes for IT support and can even charge extra for some requests," said Andy Gallagher of Compass.
"This creates a culture where users become reluctant to ask for help."
Read More: Outsourcing may be a mixed blessing
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