OUTSOURCING IT SERVICES

What are the Benefits, the drawbacks, and the risk of Outsourcing information Technology services?

What are the Benefits, the drawbacks, and the risk of Outsourcing information Technology services?

Introduction

Today outsourcing is widely practiced in all forms of organizations including corporations, governments, charities, and religious institutions. Simply put, outsourcing is a contractual agreement between the client (the organization that does the outsourcing) and one or more external suppliers (vendors) to provide services or processes currently provided by the clients' internal organization. A recent review of outsourcing (Espino-Rodriguez & Padron-Robaina, 2006, p. 51) provides different definitions of outsourcing that has evolved over time. Some are summarized here:

Outsourcing involves making a variety of “make” or “buy” decisions to obtain the necessary supplies of materials and services for the production of the organization's goods and services

Outsourcing refers to the act of turning to an external organization to perform a function previously performed in-house. It entails the transfer of the planning, administration, and development of the activity to an independent third party

Outsourcing is a collaboration agreement between different types of firms in which one firm is a specialist in technology and makes a significant contribution to the other by providing physical and/or human resources during a certain period in order to attain a determined objective

Outsourcing involves the substitution of activities performed in-house by acquiring them externally, although the firm has the necessary management and financial capabilities to develop them internally. It is also an abstention from performing activities in-house

Outsourcing not only consists of purchasing products or services from external sources, but also transfers the responsibility for business functions and often the associated knowledge (tacit and codified) to the external organization.

Though organizations initially outsourced only what can be considered support (noncore) activities, the scope of activities has now significantly expanded to include what can be considered core activities as well.

Outsourcing of IT and Related Services

IT has become an integral part of modern organizations today. The statistics are stunning. From a rudimentary base in the 1970s, the global spending on software services alone (which does not include packaged products) exceeds $350 billion today. The business paradigm for sourcing software services has also evolved over the years. From the time when Eastman Kodak announced its $1 billion deal to outsource its information systems (IS) to IBM, DEC, and Businessland in 1989, contractual arrangements for sourcing software services have become more and more innovative. Today, the outsourcing of software services has become a standard business practice in organizations rather than an exception. The Outsourcing Institute's survey of 1,200 companies indicates that 50% of all companies with IS budgets of $5 million or more are either outsourcing or evaluating the option of outsourcing. More significantly, a considerable amount of such outsourced work now goes to offshore service providers in LCCs such as India and China. Even global consulting and service providers such as IBM, CapGemini, and Accenture have in recent years started creating delivery infrastructure in countries like India to provide cost-effective services to their global ...