What is IT outsourcing?
IT outsourcing is an arrangement in which a company subcontracts its information technology related activities to be executed by a different company. In the past several decades, as the role of information technology grew in the performance of a company, the fixed cost of maintaining up and running IT facilities and staffs was increasing as well. Therefore outsourcing solution was derived from companies’ need to achieve superior performance of IT functions with minimum amount of cost. Major classifications of IT functions that companies outsource are infrastructure and applications. Infrastructure outsourcing refers to a company resolving its entire IT activities handled by a contracted vendor company on the company’s behalf. Application outsourcing stands for a company subcontracting only its core IT applications such as ERP systems, document management systems or Business intelligence applications with service provider. Benefits and Risks
Although it is obvious that primary cause of increasing trend of outsourcing is a cost factor, many other benefits come along with outsourcing. Outsourcing allows companies to shift their whole attention on the quality of their core activities without facing the vulnerability of poor level of IT performance. Because no matter what industry a company is in, cost and pressure of having in-house IT solutions require the company to be an expert in IT industry which is difficult to achieve for any size organizations especially for entrepreneurs and small businesses, slowing down their productivity as well as slowing down the economy. Subcontracting IT activities to a specialized vendor company is indeed a win-win situation for the both end, enabling the organization to upgrade its IT performance and providing business to the vendor company. Moreover, with outsourcing, organizations can get access to variable IT skills and knowledge which potentially can improve their efficiency, and outsourcing makes accommodating any new IT innovations or changes in any industry easier to handle for organizations. Needless to mention the benefits of savings on investments in IT related infrastructure which can be spent towards organizations’ business expansion or something equally important. The benefits mentioned above can be substantial only if outsourcing is practiced carefully with good management. Otherwise, oversights of important issues can bring significant complications to the organizations. Based on the stories of unsuccessful outsourcing practices, the most considerable problems the organizations encounter are the lack of integration between vendor and client, hidden costs of training, miscalculation of proficiency of the vendor company, and sometimes differentiation of the client company can be compromised since the vendor company could be serving the competitor company as well. In terms of a company outsourcing its entire IT department from a service provider company, implementation of good collaboration and communication with each other often requires some time and patience from both sides due to the differences of cultural, geographical and preferred business practices. The fact that knowledge transfer is the most important term in IT outsourcing implies the integration process of vendor and client companies is more virtual than physical. That is why the people problems such as different interpretations of the contract, conflicts of two cultures and lack of preparation for integrated operation occur very often and if ignored, they could result negative impacts on both companies. Legal, economic, geographical and political environments of the country in which the client company outsources its IT activities are the most important but often ignored factors. When the host countries face civil war or natural disaster happens, the recovery costs the companies encounter are usually incalculable. IT outsourcing best practices
Through weighting the positive and...
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