Successful IT Outsourcing - Term Paper Example

Weighing the Value, Benefits & True Cost of Outsourcing Information Technology In today’s business world, IT outsourcing is not a way to reduce operational cost anymore. With rise in competition the need for automation and IT enablement among the companies have increased rapidly. There have been increasing numbers of companies looking for IT outsourcing. It is no more a task to reduce the mundane task any more. It is way to gain competitive and strategic leverage. This study looks to conduct an in depth analysis of the various aspects of IT outsourcing including the human side of IT outsourcing. It also looks to explore the benefits of IT outsourcing that goes beyond mere cost reduction. Introduction Information Technology outsourcing is a great way to achieve the organizational objectives in an efficient and cost effective manner. However if practiced properly the benefits of IT outsourcing goes beyond than just mere outsourcing. Outsourcing offer significant business impact that leads to a stable, secure and most importantly a robust business unit that operates like a well oiled machine. The main fundamental of business process outsourcing is to outsource the mundane task to the specialists so that the organization can focus upon the core activities. As a matter of fact that is the very basic root cause of any form of IT outsourcing. However it must also be mentioned that there is another angle to the whole outsourcing saga. As the business landscape gets more and more competitive and the global economy gets unpredictable, a significant effort can be seen on the part of the companies to reduce size of the business units and budgets. Now getting into the shoes of an entrepreneur it is pretty safe to say that it is more likely that the entrepreneur would look to reduce the size of a business department that doesn’t include in the checklist of the core business activities. Such factors are the catalysts behind the rise of outsourcing business. The study has been conducted in lieu of determining the productivity benefits of IT outsourcing and to go beyond the cost effectiveness aspect of IT outsourcing (Delen, 2009. p. 25). Focusing on the importance A business of any organization irrespective of the size is quite likely to be familiar with recurrent challenges. The chances get even higher in the modern volatile economy. Some of the most familiar challenges include limited budget, shortage of quality manpower, assigning manpower keeping their core competency in mind. To make things harder there is constant need of technology enablement in almost every business department. Whatever be the situation it is pretty needless to say that the organization is under constant pressure to deliver results keeping in mind that IT applications are in alignment with organizational objective. IT can actually add value to business operations supporting the organizational objectives. This can help the organization gain strategic advantage. However there could be a few courses of concerns. An organization may not have skilled enough employees in the domain of information technology. For example an organization may require preparing daily sales reports and analyzing the performance of the sales people on daily basis. Hence in order to do so MS-Access and use of SQL could be very helpful. But the organization may not have enough skilled employees to do the required. Hence the need of outsourcing in IT creeps in. By applying the right approach in IT operation the organization can add value to their result as the IT sourcing partner may help the company with expertise, experience as well as with risk and reward sharing. It helps the company to anticipate the needs, be flexible and meet both current and future challenges (Sparrow, 2003. p. 47). Time to shatter the myths When it comes to outsourcing there happens to be quite a few mistaken beliefs. This segment of the study looks to counters those misconceptions by shedding light on some of the real benefits of outsourcing. This segment seeks to remove some of the negative links related to outsourcing and unravel some of the new positive perspectives which are built on the base of business growth and opportunity. Myth: Each service is a commodity and hence should be treated as an expense to be controlled. Myth Breaker: Each and service should be viewed as an expense and that should be controlled. However that is just one side of the story. Any form of control must not prevent any form of strategic investment. It is up to companies to analyze and determine the advantages of reducing the cost or strategic investment. Leading outsourcing companies however seeks to provide cutting edge solutions keeping the client’s business objective in mind. Myth: IT outsourcing is more of a procurement exercise. Myth Breaker: Commodity procurements are not in the same league as technology outsourcing. As a matter of fact technology outsourcing is a lot more complex than mere commodity purchasing. Outsourcing technology is to another is most likely to be a long term relationship between two business units. Hence key metrics such as customer satisfaction, core values, etc. must be kept in mind. Proper outsourcing decisions can add value great value to the business process and technology architecture. Different Forms of Information Technology Outsourcing Information Technology outsourcing can be summarize in to four broad heads end user service, application outsourcing, enterprise computing, networking and security infrastructure End user service It is more likely that the end user community is going to be quite a vocal one. It is pretty needless to say that technology is so very closely related to productivity and quality. It is basically a balancing act of striking control over the complex and ever growing environment with objective the in going activities. Outsourcing the end user support can the companies to strike the required right balance and create a focal point around the users. It is usually complemented by other automation tools. The service desk is also key part of this. The service desk people must speak the required corporate language and understand the specific business objectives. This is likely to ensure a positive experience from the perspective of the end users as robust and effective services are provided to them. End user services are likely to deliver consistent service levels, faster response, faster resolution, improves response time and aids in product streamlining (Tho, 2012. p.12). Application Outsourcing Application outsourcing support the operations that are internal in mature, helps the customers and helps the clients in acquiring competitive advantage. The key is to get adjusted to the applications to gap new opportunities. The ideal way to go is to strike the right mix. It must include functionality. It must also make sure that it bridges the gap between old and new applications. Such tasks are of great importance as factors such as probable insufficiency of staffs, budgets are to be kept in mind. All in all application outsourcing is supposed to minimize risk, solve staffing problems, improves reach to highly skilled tasks and faster response than ever (Burkholder, 2006. p. 35). Enterprise Computing One of the biggest challenges for the companies is to manage a wide range of computing resources. One wrong step or missing patch may compromise the operations severely. Hence companies look to transfer or outsource such vital and complex tasks to the specialists. The outsourcing companies are likely to provide flexible, cost effective and highly responsive solutions. The providers look to help the IT department to become more robust and responsive. This helps the companies to carry forward high degree of security, reliability and performance. Enterprise computing delivers high level of consistent service, reduces complexity, improves cost structure, makes the IT department more agile and provides value support for investments related to infrastructure (Leimeister, 2010. p. 40). Network and Security Infrastructure It is pretty safe to say that modern day business is interconnected. Hence, the networks act as a communication vehicle. Such complex networking structure provides challenge for even the tech savvy companies. To make matter there lays the fact of security concern. When it comes to security it can never be compromised. Sometimes it becomes literally impossible for firms to manage the network or to expand the network. Hence they decide to outsource it. In this case the company’s seek tailor made solution from the provider that includes network management, improved and managed communications, safe and secure network and remote access. Systems diagnostics and problem reporting is also included in the service contact quite often. All in all the objectives of outsourcing in this domain is to have consistent network, reduce cost of damage, improved dealing with network complexity and better of course. The Human Side of Outsourcing It is pretty safe to say that the companies are operating in a volatile and tough economic climate. Add to that the competition is always on the rise. Such circumstances are leading companies to outsource their IT ops with an objective to reduce cost, rationalize the modus operand. Outsourcing has several benefits which will be discussed in the study. However, very few companies focus on the human side of IT outsourcing. Each and every outsourcing project is likely to affect some employees one way or the other. Ignoring the human aspect is most likely to affect the operations of the HR department as well as the overall business performance of the company as it may break the moral of the employees (Ashley, 2008. p. 325). According to experts, outsourcing should not be looked at just as a cost saving solution. Some even used to view outsourcing as a means to get rid of problems. However, doing so may lead to great loss of business value. Rather a business unit must look at outsourcing from a different perspective. It must be looked at as a partnership with specialists seeking to add tremendous value to the business. Before initiating the outsourcing process the employees need to be involved during the whole decision making process. It must be treated as an aspect of the organizational change. The need of outsourcing needs to be communicated clearly and honestly. Add to it the probable impacts must also be communicated. The opinion of the employees should also be welcomed. That is not all of course. Even the outsourcing partners must be made a part of the whole process. Many companies actually ask one of the executives to talk to the employees and intimate them about the benefits and probable impacts of outsourcing on the business unit and the employees on a whole (McIvor, 2005. p.21). Benefits of Outsourcing In this segement the key advantages of outsourcing would be discussed. This may also help in shedding light to other advantages of outsourcing a part from cost effectiveness. Business Process improvements One fifth of the companies have treated significant improvement in the overall business process one of the key catalysts for IT outsourcing. Experts feel that most of the times the business units go for an IT outsourcing as they feel that they feel that IT departments of the firm are either non-strategic or non-core. That is why it is suggested by the experts to include process improvement as a part of service contract. It provides the companies the real efficacy. Many major outsourcing consultants even work on-shore i.e. they work on site. Such an approach acts as a major differentiating factor (Bragg, 2006. p. 54). Innovation As per the reports by a leading outsourcing company over 50% of the clients considered innovation seriously while taking outsourcing decision. According outsourcing experts companies fights hard to achieve innovation in their business approach. They treat innovation is a progressive goal. But sometimes they may not have enough fuel in the tank. Hence outsourcing is treated as the best alternative. Companies going for outsourcing looks to explore new creative avenues to improve all over productivity. It also must be mentioned that outsourcing providers must also treat innovation as a key factor and include it as a part of the overall model of outsourcing as it is going to a key drive for influencing outsourcing decisions in years to come (Sen, 2007.p. 55). Introduction of New Technology Introduction of technology is not yet one yet treated as one the core benefits for IT outsourcing. But things are changing; slowly but surely. Most of the engagements are still focused upon of the manpower based services. But companies are realizing the fact that it is almost impossible to optimize and improve a process beyond a certain distance if the systems are not IT enabled. However the clients are able to find out quite quickly that technology up gradation must be made a part of their budget as well as business outsourcing contract. Such introduction may come in the form of an introduction of new expense management tool or SAP advancement. From the providers point view; it is believed provides must actively introduce new IT platform to their clients. Providers having the ability to develop and implement new technology and customized IT platforms are likely to have tremendous competitive advantage in the future (Jacques, 2006. p. 27). Cost Reduction Yes of course at last but not the least. There quite a few factors that motivates companies to go for outsourcing. But, the key metric and the most important factor of them all have to be cost effectiveness or cost reduction. And the great news about the whole process is that 95% of the time cost reduction objectives are being achieved. The companies go for outsourcing with a motive to reduce the operational costs. According to reports, 7 to 10% cost reduction has been witnessed for outsourcing of data center service. 8 to 12%of reduction happened for desktop outsourcing services. More than 10% cost reduction for help desk outsourcing services. 7% of cost reduction occurred for network related outsourcing services. Conclusion From the above discussion it may be concluded that IT sourcing is no more a decision made by the organizations in order to get rid of the so called mundane tasks. Although, cost effectiveness seems to be major catalyst influencing the firms to go for outsourcing decisions, it definitely is not the only benefit of IT outsourcing. In order to make a modus operand of a company robust IT enablement of various departments is a must. However, the firms may not have adequate skilled employs to engage in enablement. All these factors have made IT outsourcing a strategic decision which is in alignment with the overall organizational objective. Today the level of competition is extreme. In order to gain competitive advantage the firms have become more data driven. They are seeking for automation. All these factors are likely to play a key role in the increase in IT outsourcing. However, it also advised that the companies must also be extra careful while implementing IT outsourcing. It must be treated as a major process of organizational change and all the employees must be involved to make it a major success. Care should also be provided while choosing appropriate IT outsourcing partner. References Sparrow, E. (2003). Successful It Outsourcing: From Choosing a Provider to Managing the Project. UK: Springer. Delen, G. (2009). IT Outsourcing: An Introduction. NL : Van Haren. Tho. I. (2012). Managing the Risks of IT Outsourcing. UK : Routledge. Ashley, E. (2008). Outsourcing for Dummies. US: John Wiley & Sons. McIvor, R. (2005). The Outsourcing Process: Strategies for Evaluation and Management. US: Cambridge University Press. Leimeister, S. (2010). IT Outsourcing Governance. UK: Springer. Sen, A. (2007). Innovation, Collaboration, and Outsourcing: An Exploratory Study of the U.S. Biopharmaceutical Sector. US: ProQuest. Jacques, V. (2006). International outsourcing strategy and competitiveness: Study on Current Outsourcing Trends: IT, Business Processes, Contact Centers. FRA: Editions Publibook. Bragg, S. (2006). Outsourcing: A Guide to ... Selecting the Correct Business Unit ... Negotiating the Contract ... Maintaining Control of the Process. US: John Wiley & Sons. Burkholder, N. (2006). Outsourcing: The Definitive View, Applications, and Implications. US: John Wiley & Sons. Read More