IT Outsourcing

Outsourcing is the transfer or delegation of the operation and day-to-day management of a business process to an external service provider. IT outsourcing can be regarded as the practice of transferring IT assets, leases, staff, and management responsibility for delivery of services from internal IT functions to third-party (Hirschheim and Lacity, 2000). According to Hitt et al. (1999), outsourcing is a strategic concept, a way to add value to the business that converts an in-house cost center into a result oriented service operation. The motivation for IT outsourcing is widely discussed in the literature. Shepherd (1999) provides a summary where he included financial restructuring, reduction or stabilization of costs, overcoming cultural and organizational problems, concentrating on core competencies, access to world class expertise, concern with economies of scale and scope, and possibly growth expectation. Generally, virtually all organizations are seeking the strategic value that can be captured through effective outsourcing.

IT outsourcing evolved from the early 1960s data processing service bureau to the contract programming approach of 1970s. The 1980s witnessed more focused efforts on vertical integration and internal control and a slowdown in outsourcing (Ketler and Willems, 1999). The 1990s are characterized by a renewed interest in outsourcing, following Eastman Kodak's much written-about outsourcing deal of 1989. At turn of the century, with various IT related problems (e.g., Y2K, skill demands, etc.) and developments (e.g., e-commerce) and the need for organizations to be more competitive and responsive, IT outsourcing has become a generally acceptable practice in various forms and scopes. Both small and large-sized organizations are taking advantage of outsourcing opportunities.

Since only few organizations if any, possess the resources and capabilities required to achieve competitive superiority in all primary and support activities, more especially with respect to information technology which required keeping with the dynamism of the industry and changing expertise (Hitt et al., 1999). IT outsourcing enables an organization to focus on their core competence and it provides possibility to make a right strategic decision that directly affects the work. It enables access to new technology and keeping up with the trends in the ever-changing world of IT (Ketler and Willems, 1999; Goo et al., 2000). In a situation where there is low availability of human resources, it relieves the organization of the burden of continuous recruiting due to the high turnover rate in the sector (Slaughter and Ang, 1996). Thus, we also agree that IT outsourcing could be a good decision for an organization that does not use IT for strategic purposes, but mostly for operational functions (Currie and Pouloudi, 2000), especially in a region where there is lack of adequate expertise to support in-house IT management.

According to Ang and Straub (1998), organizations apply selective outsourcing analysis in which outsourcing relationships are focused on specific IT activities where external providers supply expertise that is currently lacking. Also, organizations apply selective outsourcing analysis is applied where outsourcing relationships are focused on external providers that furnish assets or competencies for which they have a comparative advantage in terms of economies of scale. Analysis is also applied to external providers that take on responsibilities for IT activities not considered mission critical so that the organization can deploy released resources into strategic activities. Using the last option could enable an organization to nurture few core competencies and thus, increase the organizations probability of developing a competitive advantage or a tremendous improvement in a particular process (Chesebrough and Teece, 1996).

Although outsourcing IT to India and other developing countries has attracted attention, the outsourcing arrangements within developing countries are less written about. In the case of non-profit research organizations, IT could be viewed as a set of operational tools. The scientists are mainly interested in getting their work done and they may have little interest in state-of-the-art-IT. Their core competence is far from IT, though in the modern world where they operate, IT use appears essential. In as much as they are able to carry out their primary duties with IT, the kind of IT installed or the style of its management might not in any direct way provide competitive advantages to them. In fact, these non-profit organizations do not consider other organizations as competitors, but rather collaborators. They need IT to support the process of their work, communication, collaboration and coordination. For these reasons, it could be convenient for the research organizations to outsource their entire IT management functions.



Managing Globally with Information Technology
Managing Globally with Information Technology
ISBN: 193177742X
EAN: 2147483647
Year: 2002
Pages: 224

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