Perhaps one of the most critical contemporary issues facing the management of information is whether or not to outsource either some or all technologies associated with information to service firms that are specialized in various information technology aspects. This particular issue is not a phenomenon that is transient the move from management computing within a company to outsourcing is increasing very fast. The decision of how, where and when to outsource, is an issue that is likely to become one of the few issues of information management that will have to be reviewed by several multinationals in the near future. Up to now, only one explanation is good enough since it is applicable in all information technologies outsourcing The outsourcing that multinationals are attempting to become more profitable through reduced employment (Murray Crandall, 2006 Sparrow, 2003).
Outsourcing IT
Research in IT outsourcing is mainly aimed at establishing the real and tangible benefits that are likely to accrue to a firm once it starts outsourcing. This therefore means that a feasibility study has to be carried out in order to determine whether or not IT outsourcing is viable as far as the firm is concerned. Once the feasibility is conducted, the management of the firm evaluates the benefits of IT outsourcing and weighs them against the costs and demerits that are likely to arise from IT outsourcing. The feasibility study report should also contain various alternatives that are applicable giving the merits and demerits of each alternative. This will enable the management objectively evaluate the proposed method of IT outsourcing and therefore choose the best as far as the firm is concerned (Williams, 2001).
IT outsourcing research is mainly aimed at increasing the effectiveness and efficiency of a firm. The research should establish the actual time that will be saved as a result of outsourcing IT as opposed to carrying it out within the organization. Cost reduction is an overall objective in several decisions that are to be made by the management of any firm. There is no difference as far as IT outsourcing is concerned and therefore research should be carried in order to implement the best IT outsourcing policy that will enable the firm to save as much finances as possible (Tipton, Krause, 2007).
The actual play with IT outsourcing in simple terms is applying it as an instrument of driving the strategic value of the company, transforming the business of the company and finally changing the dynamics within the industry fundamentally. IT outsourcing enables managers to carryout the main tasks within their organizations while the non core functions that are expensive since it is hard for the company to experience economies of scale and thus benefit economically, are forwarded to a third party (Lee, 2008 Tho, 2005).
Offshore and inshore IT outsourcing
The IT needs have grown exponentially in the past one decade this growth has taken place in an economy that is highly competitive and fast. Therefore, in order to develop several other new projects or products as well as upgrade the new technologies in a cost effective manner and with increased pace, there are several organizations that have decided to create and invest in solution centers offshore. At the same time some organizations have opted to use the locally available IT solution centers (Tipton Krause, 2007).
In offshore IT outsourcing, an organization places the IT business processes to nations that are geographically distant from the country in which the outsourcing company operates from. This enables the outsourcing enterprise to great reductions in operational costs. Better costs calculability and reduced costs are therefore very crucial aspects of offshoring IT outsourcing. It becomes easier for the outsourcing company to convert its fixed costs into the variable ones. The outsourced IT project may need several experts and staff who may not be required once the project is over. In order to avoid the costs of retrenching such workers, companies can outsource such IT projects to firms that have specialized on them (Gordon Zimmerman, 2007).
Some companies outsource inshore from the local firms, just like in the case of offshore outsourcing, the objectives of outsourcing remains unchanged. Companies outsourcing inshore mainly outsource to regions where the cost of labor is cheaper so that they can reduce the operating costs. This type of outsourcing results into enhanced distribution of income with a country and at the same time creates more job opportunities locally (Hormozi et al, 2003).
The private and public sectors in one way or the other complements each other there are some services that are offered by the public sector that are required by the private sector and vice versa. This therefore means that the public sector can easily outsource IT projects to the private sector instead of hiring experts to do such work for only a short period of time. Such a move would benefits the government through reduced costs of operating. The reduced cost benefits would then be transferred to the public in the form of reduced tax burdens. The private sector would also benefit through increased employment opportunities in the country (Murray Crandall, 2006 Burnett, 1998).
Advantages of IT outsourcing
One of the major reasons why corporations outsource IT is reduce their overall operation costs. This involves decreasing the scope, re-pricing, re-defining the quality levels, cost restructuring and re-negotiation. IT outsourcing enables a corporation to access less cost economies known as labor arbitrage, which is arises from the wage difference between the developing and the industrialized nations. Outsourcing IT enables the outsourcing corporation to focus on its core business. The corporations resources such as infrastructure, human and investment are mainly focused on developing and expanding its core business. Cost restructuring of a corporation can also be achieved effectively through outsourcing IT to service companies specialized in the field of IT. The operating leverage is basically a measure that is used organizations in order to compare variable and fixed costs. IT outsourcing greatly alters this ratios balance by providing a shift from fixed costs to variable ones. Furthermore, outsourcing IT makes the variable costs of a company to be more predictable, which is very essential as far as planning is concerned (Ryans, 1996 Burnett, 1998).
Outsourcing IT leads to quality improvement, this is possible since the company can concentrate on functions it can do best while contracting the ones in which it does not have the capacity to operate effedtively to specialized IT firms. Knowledge base increases through IT outsourcing. Outsourcing leads to increased access to wider knowledge and experience as well as increased access to the intellectual property.
Operational expertise is usually enhanced since it might be very costly or difficult to fully develop all IT requirements within the company while it is not the core business of the company. IT outsourcing is a very essential factor in improving the capacity management of technology and services. In this case, the risk that is involved in offering extra capacity is taken by the supplier. In the recent past, IT outsourcing has emerged as a significant change catalyst. A corporation can make use of an IT outsourcing agreement to bring about major changes within the organization in which case the change agent is actually the outsourcer (Rucker, 2003).
Enhancement of capacity for creativity and innovation is a key factor in management of dynamism in the business world. This is effectively achieved via IT outsourcing whereby the corporations are increasingly applying externally sourced knowledge in supplementing the limited internal innovation capacity of the organization. IT outsourcing enables a corporation to accelerate the production or development of its products through the application of the extra capability which results from the supplier. IT outsourcing enhances the tendency of standardizing IT services, business processes, and services applications that enables corporations to purchase IT services at favorable prices, permits businesses to access various services that were previously available only to the large multinationals (Gordon Zimmerman, 2007 Cullen Willcocks, 2003).
In order for corporations operating in the current business environment to minimize as much as possible they have to consider outsourcing some of their services such as IT. A risk management approach for some forms of risks faced by corporations around the world requires the use of the services of an outsourcer who is in a position of offering mitigation for the various risks. This enables business enterprises to increase their benefits in their core business functions and at the same time reduce the risk involved in their undertakings (Edginton Jiang, 2000).
Disadvantages of IT outsourcing
There are risks involved with outsourcing such as compromising the quality of the services and products offered by the corporation. Quality risk involved in IT outsourcing is basically the tendency for a service or product to be substandard due to issues related to operations. In outsourcing IT, the risk of quality is as a result of several factors. One of the major factors is suppliers opportunism as a result of incentives that are misaligned between the supplier and the seller. Other factors include asymmetry of information, high switching costs of the supplier or high costs of asset specificity. Quality risk can also arise as a result of poor communication between the supplier and the buyer, lack of suppliers resources, capacity or capabilities, lack of supplier-buyer contract enforceability. There are two basic concepts which have to be put into consideration in regard to observability as far as risks involved in IT outsourcing is concerned. These concepts include criticality and testability (Quinn Hillmer, 1995).
Another major criticism that is faced by the general aspect of outsourcing is social responsibility. It is a fact that outsourcing leads to a scenario where jobs are sent to areas of lower income. Despite the fact that the outsourced work increases employment opportunities in such areas, there are some people who argue that such outsourcing leads to exploitation of the workers who are lowly paid. A contrary perspective is that there are more people who are employed and thus benefit from such work. However, there is hope that most of the issues raised by this criticism will be addressed over time as outsourcing becomes more streamlined in future since it is becoming competitive and this will in future compel the outsourcing corporations to adequately remunerate their suppliers. Furthermore this is an ethical issue and the ethics of a corporation cannot be dealt with in only one aspect that is outsourcing, but rather in a more comprehensive approach (Innocenti Labory, 2004 Strassmann, 1997).
IT outsourcing is largely influenced by the need for corporations to transfer the execution of IT services that do not constitute their core business to firms specializing in offering IT services. In this case, both organizations are in a position of enjoying economies of scale since they concentrate on the tasks they can do best and hand over the others to be done by experts in other firms. IT outsourcing is also largely influenced by the need of companies to reduce their costs of operating. IT is usually outsourced to regions of lower income and hence the outsourced work is charged less as compared to the cost that could have been incurred if the work was done within the company (Sparrow, 2003).
In order for corporations to not only remain relevant but also excel in the current highly competitive and dynamic business world, management has no alternative but to outsource some of the non-core functions. One of such functions that have emerged very strongly is the IT outsourcing. Virtually all corporations have to use IT services whether or not such services form the core operations of the business. While it might not be wise for a corporation whose main function is offering IT services to outsource them, other corporations that use IT in order to achieve their main objectives, can consider outsourcing such services in order to enhance their capacity of managing their core functions. In the recent past, IT outsourcing has emerged as a significant instrument of strategic management and therefore organizations has to use it in order to plan their future activities more effectively. However, corporations intending to outsource IT have to be extra careful and ensure that they outsource the right services, to the right people and at the right time in order to get value for the outsourced services.
Outsourcing IT
Research in IT outsourcing is mainly aimed at establishing the real and tangible benefits that are likely to accrue to a firm once it starts outsourcing. This therefore means that a feasibility study has to be carried out in order to determine whether or not IT outsourcing is viable as far as the firm is concerned. Once the feasibility is conducted, the management of the firm evaluates the benefits of IT outsourcing and weighs them against the costs and demerits that are likely to arise from IT outsourcing. The feasibility study report should also contain various alternatives that are applicable giving the merits and demerits of each alternative. This will enable the management objectively evaluate the proposed method of IT outsourcing and therefore choose the best as far as the firm is concerned (Williams, 2001).
IT outsourcing research is mainly aimed at increasing the effectiveness and efficiency of a firm. The research should establish the actual time that will be saved as a result of outsourcing IT as opposed to carrying it out within the organization. Cost reduction is an overall objective in several decisions that are to be made by the management of any firm. There is no difference as far as IT outsourcing is concerned and therefore research should be carried in order to implement the best IT outsourcing policy that will enable the firm to save as much finances as possible (Tipton, Krause, 2007).
The actual play with IT outsourcing in simple terms is applying it as an instrument of driving the strategic value of the company, transforming the business of the company and finally changing the dynamics within the industry fundamentally. IT outsourcing enables managers to carryout the main tasks within their organizations while the non core functions that are expensive since it is hard for the company to experience economies of scale and thus benefit economically, are forwarded to a third party (Lee, 2008 Tho, 2005).
Offshore and inshore IT outsourcing
The IT needs have grown exponentially in the past one decade this growth has taken place in an economy that is highly competitive and fast. Therefore, in order to develop several other new projects or products as well as upgrade the new technologies in a cost effective manner and with increased pace, there are several organizations that have decided to create and invest in solution centers offshore. At the same time some organizations have opted to use the locally available IT solution centers (Tipton Krause, 2007).
In offshore IT outsourcing, an organization places the IT business processes to nations that are geographically distant from the country in which the outsourcing company operates from. This enables the outsourcing enterprise to great reductions in operational costs. Better costs calculability and reduced costs are therefore very crucial aspects of offshoring IT outsourcing. It becomes easier for the outsourcing company to convert its fixed costs into the variable ones. The outsourced IT project may need several experts and staff who may not be required once the project is over. In order to avoid the costs of retrenching such workers, companies can outsource such IT projects to firms that have specialized on them (Gordon Zimmerman, 2007).
Some companies outsource inshore from the local firms, just like in the case of offshore outsourcing, the objectives of outsourcing remains unchanged. Companies outsourcing inshore mainly outsource to regions where the cost of labor is cheaper so that they can reduce the operating costs. This type of outsourcing results into enhanced distribution of income with a country and at the same time creates more job opportunities locally (Hormozi et al, 2003).
The private and public sectors in one way or the other complements each other there are some services that are offered by the public sector that are required by the private sector and vice versa. This therefore means that the public sector can easily outsource IT projects to the private sector instead of hiring experts to do such work for only a short period of time. Such a move would benefits the government through reduced costs of operating. The reduced cost benefits would then be transferred to the public in the form of reduced tax burdens. The private sector would also benefit through increased employment opportunities in the country (Murray Crandall, 2006 Burnett, 1998).
Advantages of IT outsourcing
One of the major reasons why corporations outsource IT is reduce their overall operation costs. This involves decreasing the scope, re-pricing, re-defining the quality levels, cost restructuring and re-negotiation. IT outsourcing enables a corporation to access less cost economies known as labor arbitrage, which is arises from the wage difference between the developing and the industrialized nations. Outsourcing IT enables the outsourcing corporation to focus on its core business. The corporations resources such as infrastructure, human and investment are mainly focused on developing and expanding its core business. Cost restructuring of a corporation can also be achieved effectively through outsourcing IT to service companies specialized in the field of IT. The operating leverage is basically a measure that is used organizations in order to compare variable and fixed costs. IT outsourcing greatly alters this ratios balance by providing a shift from fixed costs to variable ones. Furthermore, outsourcing IT makes the variable costs of a company to be more predictable, which is very essential as far as planning is concerned (Ryans, 1996 Burnett, 1998).
Outsourcing IT leads to quality improvement, this is possible since the company can concentrate on functions it can do best while contracting the ones in which it does not have the capacity to operate effedtively to specialized IT firms. Knowledge base increases through IT outsourcing. Outsourcing leads to increased access to wider knowledge and experience as well as increased access to the intellectual property.
Operational expertise is usually enhanced since it might be very costly or difficult to fully develop all IT requirements within the company while it is not the core business of the company. IT outsourcing is a very essential factor in improving the capacity management of technology and services. In this case, the risk that is involved in offering extra capacity is taken by the supplier. In the recent past, IT outsourcing has emerged as a significant change catalyst. A corporation can make use of an IT outsourcing agreement to bring about major changes within the organization in which case the change agent is actually the outsourcer (Rucker, 2003).
Enhancement of capacity for creativity and innovation is a key factor in management of dynamism in the business world. This is effectively achieved via IT outsourcing whereby the corporations are increasingly applying externally sourced knowledge in supplementing the limited internal innovation capacity of the organization. IT outsourcing enables a corporation to accelerate the production or development of its products through the application of the extra capability which results from the supplier. IT outsourcing enhances the tendency of standardizing IT services, business processes, and services applications that enables corporations to purchase IT services at favorable prices, permits businesses to access various services that were previously available only to the large multinationals (Gordon Zimmerman, 2007 Cullen Willcocks, 2003).
In order for corporations operating in the current business environment to minimize as much as possible they have to consider outsourcing some of their services such as IT. A risk management approach for some forms of risks faced by corporations around the world requires the use of the services of an outsourcer who is in a position of offering mitigation for the various risks. This enables business enterprises to increase their benefits in their core business functions and at the same time reduce the risk involved in their undertakings (Edginton Jiang, 2000).
Disadvantages of IT outsourcing
There are risks involved with outsourcing such as compromising the quality of the services and products offered by the corporation. Quality risk involved in IT outsourcing is basically the tendency for a service or product to be substandard due to issues related to operations. In outsourcing IT, the risk of quality is as a result of several factors. One of the major factors is suppliers opportunism as a result of incentives that are misaligned between the supplier and the seller. Other factors include asymmetry of information, high switching costs of the supplier or high costs of asset specificity. Quality risk can also arise as a result of poor communication between the supplier and the buyer, lack of suppliers resources, capacity or capabilities, lack of supplier-buyer contract enforceability. There are two basic concepts which have to be put into consideration in regard to observability as far as risks involved in IT outsourcing is concerned. These concepts include criticality and testability (Quinn Hillmer, 1995).
Another major criticism that is faced by the general aspect of outsourcing is social responsibility. It is a fact that outsourcing leads to a scenario where jobs are sent to areas of lower income. Despite the fact that the outsourced work increases employment opportunities in such areas, there are some people who argue that such outsourcing leads to exploitation of the workers who are lowly paid. A contrary perspective is that there are more people who are employed and thus benefit from such work. However, there is hope that most of the issues raised by this criticism will be addressed over time as outsourcing becomes more streamlined in future since it is becoming competitive and this will in future compel the outsourcing corporations to adequately remunerate their suppliers. Furthermore this is an ethical issue and the ethics of a corporation cannot be dealt with in only one aspect that is outsourcing, but rather in a more comprehensive approach (Innocenti Labory, 2004 Strassmann, 1997).
IT outsourcing is largely influenced by the need for corporations to transfer the execution of IT services that do not constitute their core business to firms specializing in offering IT services. In this case, both organizations are in a position of enjoying economies of scale since they concentrate on the tasks they can do best and hand over the others to be done by experts in other firms. IT outsourcing is also largely influenced by the need of companies to reduce their costs of operating. IT is usually outsourced to regions of lower income and hence the outsourced work is charged less as compared to the cost that could have been incurred if the work was done within the company (Sparrow, 2003).
In order for corporations to not only remain relevant but also excel in the current highly competitive and dynamic business world, management has no alternative but to outsource some of the non-core functions. One of such functions that have emerged very strongly is the IT outsourcing. Virtually all corporations have to use IT services whether or not such services form the core operations of the business. While it might not be wise for a corporation whose main function is offering IT services to outsource them, other corporations that use IT in order to achieve their main objectives, can consider outsourcing such services in order to enhance their capacity of managing their core functions. In the recent past, IT outsourcing has emerged as a significant instrument of strategic management and therefore organizations has to use it in order to plan their future activities more effectively. However, corporations intending to outsource IT have to be extra careful and ensure that they outsource the right services, to the right people and at the right time in order to get value for the outsourced services.