INTRODUCTION Companies are increasingly outsourcing the management of
information technology (IT) for reasons that include concern for cost and
quality, lagging IT performance, supplier pressure, access to special technical
and application skills, and other financial factors. The outsourcing solution is
acceptable to large and small firms alike because strategic alliances are now
more common and the IT environment is changing rapidly. REASON TO OUTSOURCE
Although the mix of factors raising the possibility of outsourcing varies widely
from one company to another, there are a series of themes that explain most of
the pressures to outsource. First of all, general managers’ concerns about cost
and quality drive outsourcing. The same issues such as getting existing services
for a reduced price at acceptable quality standard came up repeatedly. Second,
failure to meet service standards can force management to find other ways of
achieving reliability.
It is not atypical to find a company in which cumulative
IT management neglect eventually culminated in an out-of-control situation the
current IT department could not recover from. Management can see outsourcing as
a way to fix a broken department. Third, a firm under intense cost or
competitive pressures, which does not see IT as its core competence, may find
outsourcing a way to delegate time-consuming, messy problems so it can focus
scarce management time and energy on other differentiators. Next, several
financial issues can make outsourcing appealing.
One is the opportunity to liquidate the firm’s intangible IT asset, thus
strengthening the balance sheet and avoiding a stream of sporadic capital
investments in the future. Also, outsourcing can turn a largely fixed-cost
business into one with variable costs. This is particularly important for firms
whose activities vary widely in volume from one year to another or which face
significant downsizing. THE BENEFITS FROM OUTSOURCING Outsourcing has identified
numerous potential benefits. Financial benefits from outsourcing included rapid
funding of new systems development and economies of scale and scope. As
consolidate infrastructure through IT outsourcing, a firm can experience cost
reductions in hardware and software licensing, facilities, and support
headcount. Outsourcing, also, can capitalize on an outside vendor’s extensive IT
problem solving knowledge. An outside vendor had the ability to get more of the
technology that came out. They could spend money on investments that a company
couldn’t afford internally. That opens up a lot more avenues to future
technologies. An outside vendor would manage the IT function more efficiently. A
vendor’s main competency is managing computer systems. Through their skills,
leverage, and economies of scale, they could provide a level of efficiency that
could not be achieved at the outsourcer. Finally, Perhaps most important,
outsourcing allow internal IT managers to focus on the development of a new IT
infrastructure. Underlying the outsourcing effort is a fundamental strategy to
offload legacy applications and operations so a firm could focus on developing
new strategic application to support the global business processes, which were
being reengineered. THE PROCESS OF OUTSOURCING There are many ways to manage IT
outsourcing since every company has different culture, strategy, structure,
people, and process. Also, many important issues such as structure, Information
management operating processes, management processes, human resources management
should be clarified. However, I’m here going to use Xerox’s outsourcing process.
A company may go through 5 phases to reach a successful outsourcing; Fact
Gathering, Request for Proposal and Data Gathering, Feasibility and management
Approval, Baseline Building and Evaluation, Due Diligence and Contract Awarded.
