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...