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Outsourcing of Information Technology Services - Research Paper Example

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Executive Summary Information Technology service outsourcing is not a new phenomenon and is based on the assumption that the external service provider delivers the service faster, better and at a cost lower than what the enterprise can achieve by itself. By contracting out processes, the organization may achieve economies of scale, lower labor costs, enjoy more favorable payment terms and have a better cash flow position…
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Outsourcing of Information Technology Services
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Download file to see previous pages Dell had a unique business model and was the pioneer in selling computers through their website. They did manage to maintain direct customer contact and eliminate overhead through elimination of intermediaries, through maintaining low inventory, low finished stocks, and their outsourcing customer support and service. However, the reduced overheads can be eroded, as in the case of Dell, when they had to suffer damaged reputation and cash expenditure to restore its position. This was despite their strategy to outsource only subassemblies and have control over the final test and assembly. There was misalignment between the organizational goals and its long-term strategy. IT outsourcing must necessarily be aligned with business goals and have a long-term perspective. Introduction Outsourcing of Information Technology (IT) services has been in practice by organizations for several reasons. Organizations typically delegate their non-core functions to outside service providers on the assumption that the external service provider delivers the service faster, better and at a cost lower than what the enterprise can achieve by itself (Young, 2010). ...
However, an organization would have achieved success and effectively reduce overheads if it can offer product differentiation, reduce costs, maintain efficient supplier relationships, communicate directly with customers, if it can maintain flexible manufacturing to suit individual customer needs, if it has a culture for keeping costs contained while maintaining efficiency. Overhead expenses could include expenses that are not attributed to any specific business activity but nevertheless necessary for businesses to function. These could differ across sectors and organizations but include expenses such as rent, utilities, and insurance. Based on the case of Dell Inc, this paper would evaluate the extent to which outsourcing has changed the effectiveness in reducing overhead expenses. Dell – company strategy Dell has been one of the pioneers in mass customization and a premier supplier of technology for internet infrastructure. They are widely recognized for their built-to-order (BOT) business model. Customers can order customized orders and only when the order has been placed the system is built as per customer specifications. Dell does not stock any inputs but has an extranet that connects it with its suppliers. Dell has a network of 200 suppliers and each of them can access the secure extranet and view Dell’s report on production plan, material demand, material quality, negotiated and forecasted cost reports (Pollard, Chuo & Lee, 2008). Dell outsources subassemblies and standard and non-configurable components. To maintain quality dell retains the key final assembly and configuration processes. It ties up for essential components with suppliers with ...Download file to see next pagesRead More
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