Linda Cohen, managing vice president of Gartner tells CNET News.com: "Outsourcing requires an ongoing relationship that has to be managed proactively and measured to achieve what is expected. Outsourcing is hard work, and it takes a lot of preparation."

Therefore, before a company decides whether to outsource, it is essential to consider the possible pitfalls.

Beyond dollars
Often, the decision for companies to outsource is based on the preference to cut down operational costs. Outsourcing helps to achieve this in more ways than one. Via outsourcing, employee headcount can be reduced in order for companies to save costs on salaries. IT spending due to software and hardware maintenance and upgrading can also be minimized.

However, Janice Leong, general manager of Enterprise Infrastructure, Management and IT Security for NCS Communications Engineering, warns against an overemphasis on cost.

"Outsourcing for cost reasons alone does not last." Janice Leong, NCS Communications Engineering

"Outsourcing for cost reasons alone does not last," says Leong.

"The reasons must not only be cost considerations but also of how the outsource service provider value add to the business success at the strategic level," she adds.

According to Leong, companies need to study their core capabilities before embarking on an outsourcing deal. The services outsourced are usually non-core activities, so companies do not have to divulge too much intellectual property to the service provider. Such activities are usually related to the aspects such as IT, network security, logistics, human resource and administrative processes.

An example is IT security. As more and more businesses start establishing an online presence, they are required to be more vigilant about security on the Internet. By turning to security service providers, they are freed of the responsibility of having to monitor their equipment, which may require additional manpower. They also do not have to worry about security issues such as firewalls or software licensing.

In other words, an efficient outsourcing partnership not only frees up resources for the company, it also allows the customer and the service provider to focus on their core business competency to achieve a higher standard of service.

Making contracts