Case 4

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What is IT Outsourcing?
               A phrase used to describe the practice of seeking resources or subcontracting outside of an organizational structure for all or part of an IT (Information Technology) function. An organization would use IT outsourcing for functions ranging from infrastructure to software development, maintenance and support.IT outsourcing occurs when an organization contracts a service provider to perform an IT function instead of performing the function itself. The service provider could be a third party or another division or subsidiary of a single corporate entity. Increasingly, organizations are looking offshore for the means to minimize IT service costs and related taxes. Many times, the outsourcing decision results in a transfer or sale of the information processing assets and the people who performed the in-house function to the service provider.

BENEFITS OF OUTSOURCING
  • Operational benefits - Despite the pervasive presence of IT in modern business, the operation of increasingly sophisticated data processing environments is often not a core competency for many organizations.
  • Technological benefits - Achieving IT efficiencies may be an organization’s major expectation from outsourcing. By outsourcing, an organization may have access to people, processes and technology that it might not otherwise economically obtain.
  • Financial benefits - An important benefit often sought by management in IT outsourcing decisions is financial in nature. Outsourcing offers the possibility of bringing IT costs under control through the efficiencies that might be delivered by the service provider or the sharing of common costs among the service provider’s customer base.  

ADVANTAGES OF OUTSOURCING     





  1. Cost savings- Many businesses embrace outsourcing as a way to realize cost savings or better cost control over the outsourced function. Companies usually outsource to a vendor that specializes in a given function and performs that function more efficiently than the company could, simply by virtue of transaction volume.





  2. Staffing levels-Another common reason for outsourcing is to achieve headcount reductions or minimize the fluctuations in staffing that may occur due to changes in demand for a product or service.





  3. Focus- Some companies outsource in order to eliminate distractions and force themselves to concentrate on their core competencies. 





  4. Morale- This is an often-overlooked but still notable benefit that can sometimes be gained by initiating an outsourcing relationship  





  5. Flexibility- Still others outsource to achieve greater financial flexibility, since the sale of assets that formerly supported an outsourced function can improve a company's cash flow

  6. Knowledge- Some experts tout outsourcing of computer programming and other information technology functions as a way to gain access to new technology and outside expertise.
  7. Accountability- Outsourcing is predicated on the understanding—shared by business and vendor alike—that such arrangements require quality service in exchange for payment.
DISADVANTAGE OF OUTSOURCING




  1. Bad Publicity and ill-will- If your friends and neighbors lost their jobs because they were shipped across the state, across the country or across the world, outsourcing will bring bad publicity. If you outsource part of your operations, morale may suffer in the remaining work force.





  2. Tied to the Financial Well-Being of Another Company- Since you will be turning over part of the operations of your business to another company, you will now be tied to the financial well-being of that company. It wouldn't be the first time that an outsourcing company could go bankrupt and leave you holding-the-bag.





  3. Quality Problems- The outsourcing company will be motivated by profit. Since the contract will fix the price, the only way for them to increase profit will be to decrease expenses. As long as they meet the conditions of the contract, you will pay.





  4.  Loss Of Managerial Control-Whether you sign a contract to have another company perform the function of an entire department or single task, you are turning the management and control of that function over to another company.





  5. Hidden Costs- You will sign a contract with the outsourcing company that will cover the details of the service that they will be providing.





  6. Threat to Security and Confidentiality- The life-blood of any business is the information that keeps it running. If you have payroll, medical records or any other confidential information that will be transmitted to the outsourcing company, there is a risk that the confidentiality may be compromised.

 Implications of IT outsourcing 





  • Outsourcing Jobs    

    The jobs in India created due to outsourcing are mainly back office and research and development jobs such as Call centers, transaction processing, Chip design, Software development services, financial research, medical transcription, IT consulting, product design, tax processing and the like. These outsourcing jobs are mainly seen in the financial, insurance, technical, software and banking sectors. 





  • The Impact of Global Service Delivery on IS Organizations 

    Offshore outsourcing, which is itself a manifestation of the global service delivery model, has emerged both as an opportunity and as a threat to many IS organizations. On the opportunity side, offshore outsourcing is a fiscally sound way to distribute work globally, take advantage of regional labor markets and reduce operating costs. Moreover, the general pursuit of outsourcing, ironically, raises the business credibility of the IS organization.

 





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Posted by Jenerose_18

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