IT outsourcing trends Essay

IT Outsourcing ( Measuring IT Outsourcing in an organisation )


IT Outsourcing tendencies are germinating quickly in today ‘s concern universe. There is a turning demand for organisations to interact and incorporate with their clients, providers and concern spouse in order to derive competitory advantage. In order to remain in front of competition in today ‘s extremely competitory and ever-changing concern environment, companies are looking to cut down costs and heightening net incomes by prosecuting in IT Outsourcing. Organizations have to cover with the rapid alterations in IT, the public presentation demands of the e-economy and force per unit area to present competitory border in IT functionality. However, IT Outsourcing is non a simple undertaking to pull off, it can be instead complex in term of concern relationships. Hence it is truly of import that organisations demands to understand the engagement with the service supplier where it plays a important function in finding success or failure of IT Outsourcing agreement. In 2000, IT Outsourcing accounted for about 30 % of planetary IT budget disbursement and research by the Gartner group has indicate that “ worldwide IT outsourcing market is expected to increase from $ 180.5 one million millions in gross in 2003 to $ 253.1billion in 2008 at a compound one-year growing rate of 7.2 % ” . ( Lim, Richardson, Zmud, 2007 )

Purpose of this essay

The exclusive intent of this thesis is to depict and analyze the ground for IT outsourcing, the factors to see earlier outsourcing every bit good as the benefits and hazards of IT outsourcing.

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What is IT Outsourcing?

What precisely is IT Outsourcing? Kishore et Al ( 2003 ) defines IT Outsourcing as “ the catching of assorted information systems maps such as managing of information Centres, operations, hardware support, package care, web, and even application development to outside service provide ” . A general definition will be IT Outsourcing is the construct of prosecuting external specialised houses to manage internal company IT operations that organisations ca n’t or make non wish to set about themselves. Traditionally, IT Outsourcing involves an external service supplier being engaged via a legal understanding to present portion or all the IT maps to accomplish specified consequences. The type of outsourced IT maps can be as little and easy defined service, such as catastrophe recovery or informations storage. The term outsourcing is frequently used interchangeably because of the different type of outsourcing. There are wholly nine different types of outsourcing ( Ho, 2006 ) which is listed below:

  • Entire Outsourcing
  • Entire Insourcing
  • Selective Outsourcing
  • De Facto Outsourcing
  • Offshore Outsourcing
  • Business Procedure Outsourcing
  • Business Transformational Outsourcing
  • Retro-sourcing
  • Rural-sourcing

Why take IT Outsourcing

There are many factors why houses opt to outsource partial or all its IT operations. Harmonizing to Harland, Knight, Lamming and Walker ( 2005 ) , one of the motives for outsourcing is that “ it can liberate up assets and cut down costs in immediate fiscal period ” . Organizations who engage outsourcing of internal IT operations experienced important salvaging on operational and capital costs. As the concern environments gets more competitory, general directors tends to acquire more concerned on the usage and allotment of organisational resources. General Managers are alarmed at the rate IT budget is turning when sing modern IT budgets and petitions. ( McKay, Judy and Marshall, Peter. 2004 ) Looking at the rapid growing of IT over the last few decennaries, IT demands in organisations typically become much more complex, therefore increasing the demand for latest IT skills and up-to-date resources. The consequences send the IT budget traveling northerly. Management tends to tilt towards the thought of acquiring satisfactory outsourcing services for a decreased monetary value. When section fails to present the sort of service criterion, direction will look at IT Outsourcing as an alternate solution to repair the debatable section. Most of the houses do non truly see IT as its nucleus competency to assist them derive the concern border. They tend to happen outsourcing as a solution to depute time-consuming jobs so as to put more accent on the nucleus concern expertness. Furthermore, organisations confronting fiscal issues particularly at the recent recession may happen outsourcing as an chance to neutralize the house ‘s intangible IT plus. This allows the direction to beef up their balance sheet and to avoid a watercourse of sporadic capital investings in the hereafter. Furthermore, research indicated that outsourcing service suppliers are progressing on the right path in IT substructure and operations, therefore outsourcing to them will profit houses by working from their more advanced engineerings.

What to see before prosecuting IT outsourcing

The size and the type of an organisation have no correlativity to the success of IT outsourcing. The success of IT outsourcing depends on certain chief factors such as planning, executing, careful choice of spouse ( s ) and most significantly, the service degree understanding ( SLA ) with the outsourcing supplier. IT outsourcing may hold a batch of benefits but houses be aftering to prosecute IT outsourcing demands to see assorted factors. Questions such as why choose outsourcing, what are the cardinal points to take note in order to pull off a successful IT outsourcing. The organisation needs to measure its internal IT section to place the strengths and failings. Firms or organisations who want to follow IT outsourcing should see these four points stated below critically ( Douglas and Scott ( 2005 ) :

  • There is a demand for an organisation to measure its current procedures or demands from a fresh position in order to make up one’s mind what to outsource and what non to outsource.
  • Finding a suited service supplier is time- consuming, complex procedure and requires a thorough cognition of the seller landscape, including capablenesss, bringing procedures, quality of work, and ability to introduce.
  • In order to measure the value of an outsourcing relationship such as contracts and service degree understandings ( SLA ) will necessitate proficient, legal, and procedure expertness and in most instances in order to hold control over the outsource procedure may necessitate local presence at the seller ‘s location and cognition of the outsourcing sellers civilization.
  • “ Pull offing uncertainness and extenuating hazards requires explicating an alternate scheme while puting up the outsourcing relationship, and planning in progress for concern procedure migration to a 2nd seller in the event of failure ” .

When organisations want to outsource its IT operations, they should understand the long term branching of IT outsourcing to their overall concern scheme and reference inquiries ( Power, Bonifazi and Desouza ( 2004 ) such as

  1. “ Do we cognize what our nucleus competences are?
  2. Can our clients, providers and rivals validate our nucleus competences?
  3. Can IT outsourcing be a nucleus piece of scheme that lets the organisation accomplish its coveted consequence?
  4. Do we have the informations to place possible countries that may be campaigners for outsourcing?

Firms demands to find what sort of IT operations, procedures and substructure they want to outsourcing because outsourcing all these activities may take away the internal competency and acquisition accomplishments which might in turn make in-sourcing problematic. ( Harland et al, 2005 ) The motive which usual determines the overall determination of an houses to outsources its internal IT operations typically includes: improved quality of service, cost decrease, and entree to acknowledge expertness and new engineerings among others.

Advantages of IT Outsourcing

Most companies consider their information systems being at lower hazard if managed and developed by external experts who are much more competent instead than trusting on in-house IT with small or no resources and competent expertness. General Managers may happen that prosecuting external service suppliers gives them much more control on the services rendered to them.

Access to progress engineering:

The being of a seller ( s ) in an IT outsourcing relationship provides organisations with advanced engineering and competent forces. Typically, client organisations start sing an outsourcing agreement when be aftering an of import ascent of IT services. Consequently they are likely to acquire the ”best-of-the-breed engineering services ” from sellers that can back up them in accomplishing their missions. ( Chen 2003, p.10 )

Greater ability to run into the demand for skilled IT forces

Chen ( 2003, p.10 ) was of the sentiment that one of the major jobs confronting most companies in transporting out big IT undertakings is the deficit of IT forces. It should be noted that good package development accomplishments and expertness are frequently hard to happen, and outsourcing will therefore enables houses to hold entree to such needed capablenesss and resources, in order to make full the spreads that exist in their current capablenesss, therefore supplementing in-house competencies.

Quick deployment

Another benefit of IT outsourcing over in-house service proviso is speedy deployment. Equally far as new and significantly expanded IT services are concerned, outsourcing sometimes has an border over in-house proviso. In-house proviso requires a batch of capablenesss to afford such as engaging a big figure of new IT forces, set uping the IT substructure, incorporating old and new systems, and doing procurement determinations for different constituents that go with the new services. This can be a hard and detering undertaking. On the other manus, sellers can supply a packaged solution that contains all these short coming mentioned in in-house proviso. If the sellers are experienced in some alone type of services, many systems are tested and possible cringle holes can be predicted, and as a consequence the deployment clip can frequently be less than half of the clip needed for in-house proviso. ( Chen 2003, p.10 )

Flexibility in the pick of engineering and faculties

Arrested development on the purchased engineering is one of the major drawbacks of in-house IT service proviso. Obtaining IT equipment for in-house service proviso is a big capital investing and because of fiscal grounds this sometimes forces the continued usage of out-of-date ( or obsolete ) engineering. IT outsourcing will therefore provides client organisations the flexibleness in the pick of engineering and faculties. Since the nature of engineering is ”fast-changing ” , outsourcing allows for better hazard direction. As a consequence the hazard is shifted to the sellers as they are in charge for engineering ascents. ( Chen 2003, p.11 )

Improvement of hard currency flow direction

Normally, outsourcing assist client organisations with hard currency flow direction. By and large there is a ”fee-for-service ” footing assigned to the client organisation for any outsourcing agreement and later the client organisation is waived from a big initial capital investing. ( Chen 2003, p.11 )

Cost nest eggs

This is another ground for IT outsourcing. Economies of graduated table may digest sellers to offer services at a lower rate as compared to in-house IT service proviso. Several client organisations may portion the same IT substructure as the seller. The cost incurred in keeping a specialised support crew is besides shared by a figure of client organisations. The cost nest eggs are peculiarly important when geting a extremely specialised service, which is by and large expensive. ( Chen 2003, p.11 )

Hazards when prosecuting in IT Oursourcing

Contractual agreements and determinations required to do a successful IT outsourcing understanding ever entail hazards. As a consequence hazard is something really hard to avoid in any contractual agreement merely like any other concern ventures such as new merchandise development and IT/IS undertakings. Therefore, it is of import to calculate the necessary hazards and implement steps that will forestall them from happening. The hazards or disadvantages of IT outsourcing can farther be classified as follows:

Loss of control over service quality

The primary concerns that IT outsourcing can expose client organisation to is the loss of control over service degree and service quality. When a client organisation outsourced an IT service, factors such as the undertaking range, costs, engineerings, and IT way of the client organisation, may be beyond direct direction control normally available to in-house IT service proviso. When a immense spread exists between the client organisation ‘s cognition of services and the seller, control is peculiarly non an easy undertaking. Consequently client organisations have trouble in the proof of any claims that seller organisations make, since they may non hold entree to critical information possessed by the seller for claim proof. ( Chen 2003, p.11 )

Possibility of compromised security

Another hazard factor here is security. Because of outsourcing, critical information may be stored in a installation outside the client organisation, and the network-connected information systems of the client organisation and those of the seller may later be subjected to security menaces. Another hazard here is that if the major engineering substructure of sellers is shared by multiple client organisations, there can be many beginnings of security menaces. When security patterns are debatable, security can besides be an issue. In turn toing security menaces, factors such as forces developing and background showing of IT forces are indispensable. ( Chen 2003, p.11 )

Possibility of service break due to instability of sellers

Many client organisations consider stableness of seller as a major hazard factor. The endurance of sellers unlike public organisation is dictated by the regulations of the market place. Sellers that supply IT services may travel out of concern without clear warning marks ( Chen 2003, p.11 ) . Besides, the external supplier ‘s forces may besides alter over the class of a long term outsourcing attempt, and it might be hard to replace forces that will continue with the challenge. As a consequence the outsourcing attempt will fall apart accordingly taking to chaos throughout the company that hired the seller. To decide this state of affairs the company has to pass extra resources such as clip, energy, and money in hunt for a new seller before get downing the outsourcing procedure all over once more, therefore doing the whole procedure complicated.

Increased complexness of managing and supervising the outsourcing contract

It should be noted that the complexness of relationship direction is normally underestimated. The direction and care of an outsourcing contractual relationship poses some hazards. Client organisations need to reassign their forces and proficient resources to the seller after the contract is negotiated. If non prepared decently, client organisations will probably run into jobs of hapless service quality or a mismatch between organisational demands and service provided by sellers. IT outsourcing agreement may work expeditiously but non in alliance with the organisation ‘s strategic ends if the transportation of cognition about the bing system or demands for a new system at assorted degrees of the organisation is ignored or done ill. Lack of a proper monitoring of service degree by the client organisation may set it at hazard of running into major service upsets. The deficiency of a joint problem-solving mechanism and hapless communicating may do lost chances for early sensing of job and uninterrupted betterment. ( Chen 2003, p.11-12 )

Prolonged procurance procedure

Complicated regulations and processs could wash up the resources of a client organisation. The chance of altering engineering and leading is another complication associated with the drawn-out procurance procedure. The cardinal part of engineering identified in the preliminary contract may hold to be re-examined and some of the footings of service may necessitate to be re-negotiated. If the procurance procedure takes a long clip, this may impact leading. All of these attention deficit disorders to the challenge of keeping a good working relationship with sellers. Furthermore complex regulations and processs can make barriers to entry and restrict the choice available to client organisations. ( Chen 2003, p.12 )

Union force per unit area and budgetary uncertainness

IT outsourcing is even more complex in the populace sector when brotherhood force per unit area and unsure budgetary support are present. The intervention of IT forces concerned in an IT outsourcing agreement has a great impact on the success of the undertaking. ( Chen 2003, p.12 )


In a fast growth and altering markets with an addition gait in globalisation, competition additions and becomes even tough. With this addition in competition a greater demand is assigned to fabrication and service companies. To run into this demand posed by clients entails a batch of capablenesss and resources that may be hard to afford, and one manner of accomplishing these resources is by prosecuting in IT outsourcing.

Although there are a batch of noteworthy benefits of IT outsourcing but IT outsourcing besides entails hazards such as the hidden cost, security and confidentiality issues, service quality issues and system or operation breaks merely to call a few. In an effort to extenuate hazard, a company prosecuting in an IT outsourcing will seek to protect its nucleus activities and outsource non-core activities for security and confidentiality grounds. Though companies vary with regard to their operations, they will be optimistic to see benefits that will outweighs any possible hazards or cost in an IT outsourcing since the chief aim of any company is to maximise net income and minimise cost.


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