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How does outsourcing Enterprise Mobility help in cost-cutting?

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By now, we all have understood the importance of Enterprise Mobility. It helps in increasing the productivity, smart decision-making and acts as a cost benefit analysis. Many-a-companies will feel that it is always better to build an IT infrastructure for automating the workforce. Building an in-house enterprise mobility solution not only incurs costs but also there are many chances for failure. So, it is clearly understood that outsourcing enterprise mobility is much better than building it inhouse. Let us see the economic impacts of outsourcing enterprise mobility.

From the point of view of economics, outsourcing enterprise mobility changes both the relative costs of capital and costs of information. Information systems technology can be viewed as a factor of production that can be substituted for traditional capital and labor. Hence over time managers should increase their investments in Enterprise Mobility (EM) because of its declining cost relative to other capital investments. Here is the break-up of costs incurred for company when an in-house enterprise mobility is developed:

A good IT infrastructure affects the cost and quality of information and changes the economics of information. Outsourcing enterprise mobility helps firma contract in size because it can reduce transaction costs- the costs incurred when a firm buys on the marketplace what it cannot make itself. According to transaction cost theory, firms and individuals seek to economize on transaction costs, much as they do on production costs. Using markets is expensive because of costs such a locating and communicating with distant suppliers, monitoring contract compliance, buying insurance, obtaining information on products, and so forth.

A proper and standardized IT infrastructure, especially with the use of networks, can help firms lower the cost of market participation (transaction costs), making it worthwhile for firms to contract with external suppliers instead of using internal sources. As a result, firms can shrink in size (number of employees) because it is far less expensive to outsource work to a competitive marketplace rather than hire employees.

Given below is the transaction cost theory of the impact of IT infrastructure on the organization

Transaction Cost Theory

The above graph means that firms can outsource work using the market, reduce their employee head count, and still grow revenues, relying more on outsourcing firms and external firms.

Information Technology also can reduce internal management costs. According to agency theory, the firm is viewed as a “nexus of contracts” among self-interested individuals rather than as a unified, profit-maximizing entity. As firms grow in size, i.e., as firms scale up, agency costs or coordination costs rise because owners expand more and more effort supervising and managing employees.

Enterprise Mobility, by reducing the costs of acquiring and analyzing information, permits organizations to reduce agency costs because it becomes easier for managers to oversee a greater number of employees. The graph below shows that by reducing overall management costs, a proper IT infrastructure enables firms to increase revenues while shrinking the number of middle managers and clerical workers.

Agency Cost Vs Firm Size

Agency costs are the costs of managing a firm’s employees. IT reduces agency costs making management more efficient. Fewer managers are needed to manage employees. IT makes it possible to build very large global firms and to run them efficiently without greatly expanding management.

Outsourcing Enterprise Mobility reduces both agency and transaction costs for firms, along with having a dedicated resource team which has a 24X7 support system. And with this, companies can see the revenue per employee increase over time.