Management Information and Communication Systems - Outsourcing - Coursework Example

Management Information and Communication systems By Table of Contents Table of Contents 2 Introduction 3 2.Outsourcing: Why organizations adopt it? 3 3.Advantages and Disadvantages of Outsourcing 7 3.1.Disadvantages of Outsourcing 7 3.2.Advantages of Outsourcing 8 3.2.1.Financial 9 3.2.2.Technical 9 3.2.3.Management 9 3.2.4.Human Resources 9 3.2.5.Quality 9 3.2.6.Flexibility 9 4.Types of IT Outsourcing Contracts 10 4.1.Complete IT Outsourcing 10 4.2.Systems Integration 10 4.3.Facility Management 11 4.4.Other Categories 11 5.Crucial Issues in Outsourcing 11 6.Worrying Trends or Issues in Outsourcing 15 6.1.Expenditures and Cost 16 6.2.Quality Assurance 16 6.3.Task Assigning 17 6.4.Post-agreement Procedures 17 6.5.Lack of Understanding among Client Leaders 18 6.6.Adopting Latest Trends 18 6.7.Civilization and Communicational Issues 19 6.8.Job losses due to Outsourcing 19 7.Recommendations 20 8.Conclusion 21 Bibliography 22 1. Introduction With the passage of time, when the size of a corporation or range of business grows as compared to its resources (human or technological) then outsourcing turns out to be an ultimate choice for them. Though, the outsourcing is not a new idea as it being utilized by the majority of firms in order to attain different objectives. In addition, organizations outsource their IT functions due to many reasons. For instance, some organizations want to decrease their expenditure by getting rid of the additional burden. The basic purpose of this report is to discuss the reasons that force organizations to outsource their IT functions or specific tasks. This report presents a detailed analysis of the idea “outsourcing”. This report will discuss the outsourcing working paradigm and its use for the information systems. This research provides discussion on the impacts of the outsourcing the information systems on the organization’s performance. This research will also discuss various advantages and disadvantages of information systems outsourcing. This report also discusses potential issues that can cause failure of IT outsourcing. 2. Outsourcing: Why organizations adopt it? The corporations can develop and maintain information systems internally or in-house by utilizing their own resources (technology and staff) or outsource it, which means they hire an outside firm for developing and maintaining their information systems for them. Additionally, outsourcing allows corporations to pay more attention on their inside business activities alongside allowing other firm having additional expertise and resources to carry out some portion of their business information system management activities. However, several companies outsource only the information system development component of their IT activities. On the other hand, others outsource more or every part of their IT activities. The reason of doing this is to survive and remain competitive in this age of constantly transforming information technology (Shelly, et al., 2005, p. 638; Dibbern, et al., 2004; Goles & Chin, 2005). However, all this depends on a corporation’s requirements, as well as outside firms can fulfill as much or as little of the IT requirements as indispensable or desired. In addition, external firms offer a variety of services including information system development and maintenance, web design and development, customer service, web hosting, billing, sales, marketing, and officially allowed support, for instance, an internet solutions provider is a firm, which offers web hosting services such as inventory, management of shopping carts, and credit card processing (Shelly, et al., 2005, p. 638; Koh, et al., 2007). According to (Laudon & Laudon, 1999), if an organization does not make use of its internal resources to deal with or manage information systems, it can hire an outside company that specializes in offering these facilities or services to perform the tasks. “The process of turning over a corporation’s information systems, telecommunications networks, or application development to outside companies is acknowledged as outsourcing” (Laudon & Laudon, 1999; Hongxun, et al., 2006). A widespread process for decreasing the information system development and maintenance time is to subcontract an action. The subcontractor may have access to modern and up-to-date technology or knowledge that will augment the speed of the accomplishment of the action. For instance, signing a contract for a backhoe can complete in two hours what it can take a group of labors two days to do. In the same way, by appointing a consulting firm that is expert in ADSI programming, an organization may be capable to cut in half the time it would take for fewer knowledgeable, in-house programmers to carry out the task. Subcontracting also frees up resources that can be assigned to a most important action and will preferably effect in less project duration (Gray & Larson, 2006, p. 284). Various corporations sign up an agreement with an external consulting company that specializes in information systems development to conquest few or the entire of its development processes. For instance, American Express took the services of IBM for approximately 4 billion dollars over 7 years to run its web based system, data storage, network servers, and helpdesk related activities. In addition, the contract also moved more than 2,000 American express staff members to IBM’s Global Services division. Also, in another deal regarding outsourcing, AT &T has decided to pay ‘Accenture’, a computer consulting firm, approximately 2.6 billion dollars to offer supervision for improving performance and reducing costs for AT&T’s long-distance division. However, the reasons for which outsourcing is used include, diminishing costs, accomplishing modern and up-to-date technology, improving technological performance, and decreasing the number of employees and personnel problems. Below given Table outlines the circumstances in which outsourcing is a good idea: (Stair & Reynolds, 2003, p. 522): Table 1Reasons for Outsourcing, Table Source: (Stair & Reynolds, 2003, p. 522) Reason Example When a corporation is confident it can reduce costs PacifiCare outsourced its IS operations to Keane, Inc. and IBM Corporation. PecifiCare expects the outsourcing will save its more than 400 million dollar over ten years. When there is limited opportunity for the firm to distinguish itself competitive through a particular information system operation or application. Kodak outsourced its IS operations, including mainframe processing, telecommunications, and personal computer support, because there was limited opportunity to distinguish the company through these IS operations. Kodak kept application development and support in house because it thought that these activities had competitive value. When continuous information system service is not necessary Catalog shopping systems or Airline reservations are “mission critical” and should not be trusted outside the corporation When outsourcing does not strip the corporation of technical expertise necessary for future information system improvement Firms must ensure that there is staffs remain technically up-to-date and have the expertise to develop future applications. When the corporation’s present information system operations are incomplete, unproductive, or technically lower A corporation can make use of outsourcing to facilitate it to adopt the change from a centralized processing environment to a distributed client/server environment. When an organization is downsizing. The decision to outsource systems development is often a response to downsizing, which reduces the equipment and system, number of employees or managers’, and even operations and departments. Outsourcing facilitates organizations to trim down the IS department and ease complicated economic circumstances by minimizing payroll and additional expenditures First Fidelity, a major bank, made use of outsourcing as fraction of a program to decrease the number of employees by 1,600 and slash expenditures by $85 million. At this point of time, the trend of high level IT outsourcing is more than 20 years old. In addition, the corporations, which have adopted this fashion for at least several years are continuously growing. Since, the researches and IT-related periodicals contain many stories about their practices. Additionally, the outsourcing is also well-liked at international level, as it is explained by (Zviran, et al., 2001; Turban, et al., 2005, p. 615). However, according to various researches about outsourcing, the cost savings of outsourcing are not huge (possibly approximately 10 percent) and that not all the corporations experience cost savings. Thus, this leaves the question of whether outsourcing IT can enhance performance of a corporation by facilitating it to focus more strongly on inside processes (Turban, et al., 2005, pp. 615-16; Babar, et al., 2007). 3. Advantages and Disadvantages of Outsourcing 3.1. Disadvantages of Outsourcing The companies should outsource or not, this concern is still very confusing (Hirschheim & Lacity, 2000). Since, there are lots of limitations of outsourcing (Cramm, 2001). However, the basic reason for the confusion is that a number of advantages of outsourcing have enduring payoffs or are intangible. Additionally, various risks are also associated with outsourcing. For instance, elusion takes place when an outside firm intentionally underperforms at the same time as claiming full fee (e.g., asking to pay more than work, offering outstanding personnel in the beginning and afterward changing them with less experienced personnel (Turban, et al., 2005, p. 615). Poaching takes place when an outside firm designs or builds an information system for a company and then sells it to other company. Additionally, the opportunistic repricing takes place when a client enters into a long-term agreement with an outside firm and the outside firm varies monetary terms during the project or at end or takes extra charges for unexpected improvements and agreement extensions (Turban, et al., 2005, p. 615; Leavy, 2004; Gonzalez, et al., 2010). Furthermore, a company that is outsourcing its information system will loose some control over the information system that it needs. Since, an information system is a technology that differs its operations, services, and products, thus, a corporation by outsourcing runs the risk of putting the fate of its competitiveness into the hands of a third party (Pressman, 2001). Another potential risk of outsourcing is unproductive effort to determine all the expenses. Since, some expenses are unknown. (Barthelemy, 2001) outlined the following hidden expenses: 1. Searching for an outside firm for outsourcing 2. Transforming from in-house IT to an outside firm 3. Expense of controlling the work 4. Transforming from outsourcing firm into in-house activity However, these expenses could be controlled to some extent, but not completely (Turban, et al., 2005). 3.2. Advantages of Outsourcing Despite the risks involved in outsourcing, still there are numerous benefits of outsourcing, organizations can use outsourcing for various purposes and advantages (Turban, et al., 2005; Leavy, 2004; Koh, et al., 2007): 3.2.1. Financial Saving a corporation from massive capital investment, thus assigning resources for other organizational purposes Better use of cost and cash flow Gaining outlay advantages and assistance from economies of scale and from sharing software, hardware, computer housing, and employees Reducing need for costly workplace 3.2.2. Technical Outsourcing offers corporations the capabilities to attain technological enhancements more rapidly and simply Better choice to select software because of a broad variety of hardware Better and easily access to technical skills 3.2.3. Management Allocation of information system development processes (design, development, and acquisition ) and operational task to contractor Putting attention on running and maintaining major business activities Minimizing the need to hire and train skilled IT personnel 3.2.4. Human Resources Opportunities for personnel to learn from the experience of outside firms as well as improved career development Opportunity to offer on professional skills, obtainable from a toll of skills, when necessary 3.2.5. Quality Greater and improved performance accountability Absolutely classified service levels Quality certification 3.2.6. Flexibility Rapid rejoinder to business needs and demands Capability to manage IT peaks and valleys more efficiently 4. Types of IT Outsourcing Contracts Basically, information technology is a vast discipline which encompasses a wide variety of practices and domains. Hence, the IT outsourcing also falls into a wide variety of categories. These types of outsourcing can comprise complete outsourcing, systems integration outsourcing and facility management outsourcing. 4.1. Complete IT Outsourcing In complete outsourcing an organization moves its entire IT process, accompanied by current IT resources and equipment, to the vendor. As a result, complete IT process of an organization is considered as a market product. However, this category of outsourcing involves the creation of huge and complex agreements, comprising a large number of resources as well as associated legal concerns. In addition, this type of outsourcing is selected for long-term agreements (Lee, 1996; Mclvor, et al., 2013; Webb & Laborde, 2005). 4.2. Systems Integration The second category of IT outsourcing is known as systems integration in which some of the major IT functions are transferred to an outsourcing vendor that is responsible for managing the operation and installation of the outsourcing firm’s varied IT systems in a mode that these systems can work collaboratively and can be connected to other systems of the firm. In addition, the majority of large size organizations are adopting this trend in order that they could pay attention to their key operations. However, due to this a variety of interconnectivity issues are emerging between different organizational IT systems (Lee, 1996; Mclvor, et al., 2013; Webb & Laborde, 2005). 4.3. Facility Management The third category of outsourcing is known as facility management in which outsourcing vendor is responsible for providing the human resources which are required to manage and control the customers software as well as equipment (Lee, 1996; Mclvor, et al., 2013; Webb & Laborde, 2005). 4.4. Other Categories Apart from these specific categories there are other categories of outsourcing as well. Some of the other categories can comprise procurement or installation contracts, maintenance agreement, software development and implementation agreements, rental contracts, and time-sharing contracts. In addition, with the passage of time there are also emerging other types of contracts such as telecommunication and networking management contracts, agreements training or education, and end-user-computing support contracts (Lee, 1996; Mclvor, et al., 2013; Webb & Laborde, 2005). 5. Crucial Issues in Outsourcing In the context of outsourcing the successful execution of business activities depends on various aspects such as appropriate strategic decision; needs that suit both the parties, effective management of relationships and so on. In fact, the outsourcing is a huge and complex process that requires effective management throughout the process in order to deliver fruitful results. There are many kinds of issues that can affect the success of the outsourcing. In this scenario, the management of outsourcing relationship is a critical aspect of the outsourcing that needs to be given a particular focus. It is believed that the majority of outsourcing efforts fail due to ineffective outsourcing relationships (Girst & Schleyer, 2005; Lee, 1996). Basically, the effective management of outsourcing relationships need a variety of aspects such as key actions and skills consisting of appropriate communications abilities which are frequently applied. In fact, a large number of outsourcing relationships fail to survive due to ineffective communication. In this scenario, this communication can further comprise other types of communications such as continuous and open communication, in the form of structured and ad hoc, between management teams, and all these types are very crucial for the successful outsourcing relationships. Additionally, this requirement is equally important for both the vendors and customers. In order to deal with these issues, organizations should hire managers that possess excellent negotiation and communication skills. In view of the fact that mismatch between the provider’s and the buyer’s vision or goals, or between requirements and performance can be very expensive, hence the manager should be capable of discussing problems and providing solutions and brokering in an attempt to sustain association and a optimistic relationship (Girst & Schleyer, 2005; Griswold & Buss, 2004). Sometimes there occur a variety of conflicts between the buyer’s and provider’s objectives that lead to serious confusions and spoil outsourcing relationships. Hence, in order to establish and maintain successful outsourcing relationships both the buyer and provider must agree on a shared vision. In this scenario, both the parties must cooperate with each other and frequently make sure sustained alliance of their corresponding beliefs, requirements and goals in order to maintain effective relationship. In addition, both the parties should ensure proper governance as well as development of appropriate management teams that are capable of communicating regularly as well as amenably boosting prospects for success (Girst & Schleyer, 2005; Lee, 1996). Without a proper agreement a successful outsourcing relationship cannot be built and maintained. In other words, a successful outsourcing relationship is formed on the basis of a good agreement. Basically, this agreement contains all the objectives, requirements, liabilities, and expectations of both the parties. Hence, it offers the only reliable basis for the relationship management. In view of the fact that normally outsourcing agreements are defined for long-term relationships so these agreements are believed to be very critical for the success of an outsourcing effort. In this scenario, all the efforts should be done to make these contracts appropriate. Everything mentioned in these agreements should be reviewed twice and in case of any confusion it should be resolved as soon as possible in the initial phases of the project (Lee, 1996; Mclvor, et al., 2013; Webb & Laborde, 2005). It is believed that the majority of IT vendors do not reveal the same income intentions as compared to their outsourcing customers. In this scenario, a good contract can play a significant role in meeting the expectations of both the parties. In addition, a large number of researchers have concluded that bad contract is one of the basic issues that spoil effective outsourcing relationships (Lee, 1996; Mclvor, et al., 2013; Webb & Laborde, 2005). Many outsourcing problems emerge due to contractual issues. Without a doubt, in the context of outsourcing customers and vendors are not associates or partners for the reason that they don’t have shared profit motives. It is an admitted fact that outsourcing vendor does not act in customer’s favor whenever a state of conflict occurs. In this scenario, appropriately and carefully developed contract is the key tool for identifying the responsibilities, the rights, and expectations of both parties. Basically, this contract plays the role of a guide throughout the process. In addition, while developing contracts the organizations should carefully determine and understand the any legal and complex issues involved in IT outsourcing (Lee, 1996; Clark, 1992; Kathawala, et al., 2005). A large number of researches have been conducted at various levels to determine the issues, challenges and trends of outsourcing. The majority of researches have focused on security and privacy related issues. Though, these issues remain a primary concern when business functions are outsourced but there are still many other issues as well those are ignored by the majority of researchers. In this scenario, contractual and governance related issues can cause serious troubles for successful outsourcing relationships. In their paper, (Markus Biehl, 2011) discusses the results of a survey which encompassed data from more than 1600 IT outsourcing firms. This survey revealed that outsourcing customers which are provide with effective relationship management and superior governance capabilities, seem to have much higher satisfaction levels than those outsourcing customers who do not get these capabilities. In view of the fact that outsourcing efforts require dealing with a wide variety of interdependencies and complexities at the relationship and technical level hence it can require considerable changes at the organizational level. In this scenario, these major changes can pose serious challenges for the firms towards attaining the anticipated goals through IT outsourcing. Hence, in order to deal with these issues the firm must implement an enterprise-wide governance vision (Markus Biehl, 2011; Barthelemy, 2003; Elmuti, 2003). At the present, a large number of IT firms are adopting the outsourcing trend. In fact, the trend of outsourcing is heavily adopted for IT processes and functions. However, the outsourcing is not as simple practice as it seems. In fact, it involves a variety of issues that need to be addressed in order to gain the benefits of outsourcing. In view of the fact that outsourcing can involve a substantial investment which can affect the company’s end result, by having serious effects on its important elements such as risk profile, culture, flexibility, customer relationship and everyday tasks. As a result, organizations should pay particular attention to various elements such as quality of the services, laws and legislation, relationship between parties and cost before adopting the trend of outsourcing. Simultaneously, they should also pay attention to serious issues associated with outsourcing like that availability, reliability/service ability, security and contractual obligation. According to (Arshad, et al., 2007) “dealing with risk clearly is one of the critical success factors for the successful IT outsourcing”. In this scenario, the organizations must conduct continuous risk management all through the process of outsourcing (Arshad, et al., 2007; Goo, et al., 2007). 6. Worrying Trends or Issues in Outsourcing When we talk about the issues that organizations can face in outsourcing, it is not single one to define. There are lots of issues which need to be discussed. However, one of the most important issues is barriers or basic difficulties that organizations face during outsourcing. Additionally, there are also some non-financial issues that include differences in allocation of time regions (for instance, country trimming is different from other countries), variation in language spoken from one country to another is also a key factor, unpredicted civilizing variations in addition to the requirement for information safety are the most important issues that an organization face during outsourcing. According to a research, organizations in United States merely accumulate more than 15% that is equivalent to those funds that might be obtained through outsourcing locally to an economically depressed area (Mintz, 2004; Chopra, 2010). 6.1. Expenditures and Cost The most important aspect that organizations must consider before outsourcing is that they have to be familiar with variations in a number of concealed costs related to outsourcing. Typically these costs may be forgotten by representatives, particularly when they are making a deal with any outside firm. Therefore they must adopt such trends which enforce to plan strategy about the legal expenses during signing deals (Mintz, 2004; Chopra, 2010). 6.2. Quality Assurance Quality of product is a most adoptable step that most organizations think about before outsourcing. Additionally, organizational executives are always aware of fact that quality insurance is such a hotspot which will become a first priority of organization in today’s changing trends round the globe. Therefore it is major requirement to adopt careful procedures that are necessary towards achieving products’ quality. In this scenario, an important perspective that they must remember is that which organization fulfills their requirements and what sort of organization is most suitable for it. It is seen sometimes that some people adopt economical way out that can cause problems for them and this sort of arrangements does not guarantee quality work (Mintz, 2004; Chopra, 2010). 6.3. Task Assigning In the above paragraphs we have discussed various issues which are important at their own way but one more critical issue for the organizations is about “what sort of tasks or responsibilities should be assigned for outsourcing”. In fact, a lot of organizations have completed critical outsourcing core organizational functions e.g. accounting and other clerical service. Hence it can be said that the performance aspect in a lot of organizations that are involved in outsourcing either internationally or locally cannot be achieved before the outsourcing. Additionally when organizations consider outsourcing it is seen that the reserves are not essentially as vast as they think about them or as they look like; in addition to the reserves that they acquire might not have significance that impacts the consumers’ requirements. In this scenario, if we compare outsourcing with additional business trends, we will see that outsourcing perspective can only be adopted by a decision of individual organization. Moreover adopting outsourcing would not guarantee to generate enough money in a short period of time (Mintz, 2004; Chopra, 2010; Davies, 2010). 6.4. Post-agreement Procedures The outsourcing perspective is not lemmatizing in some issues researchers and analysts observe a lot of key factors that result in disturbances during outsourcing. However basic understanding about outsourcing may include issues related to crisis that occur due to deficiency in mutual understanding and conclusions that are not easily understood. Additionally in simple words it can be said that the customers along with service enablers’ do not want to make arrangement in their work or they are not ready to make a mutual effort later than agreement is operational. Thus these applications are not performed according to those standards which are defined in agreement. Hence this activity results in frustration among client and stakeholder and creates problems in completion of activities. Therefore the whole planning for acquiring business related profits turns out to be a dream (McCray, 2008; Bell, 2006). Moreover the key aspects in this issue also include possible sensation and performance modification that approaches through outsourcing. In this way explanation requires must be fulfilled in a proper way along with understanding that is a major reason for other problems. Hence it can be said that these issues are occurred due to the better management of advance processes that needs to meet the standards of requirements (McCray, 2008). 6.5. Lack of Understanding among Client Leaders One more key issue that survives during the process of outsourcing is the deficiency of buy-in from senior leaders who are beneficiary of the services that provides outsourcing nationally or internationally. Moreover, various researches have shown that a lot of group executives who acquire new services are not in a position to contribute energetically in the outsourcing assessment or acquire proactive interactions concerning its status. Thus it results in energetic or submissive confrontation to the whole outsourcing structure and it takes a corporation toward failure (McCray, 2008). 6.6. Adopting Latest Trends If we talk about the issues and forget to mention the aspect to adopt new trends according to varied requirements of the user is just like a time wasting. As time is changing day by day and technological advancement in information technology (that affects outsourcing a lot) results in modern trends. In addition, global market is expanding and services are provided from distant locations have their own importance but sometimes it is seen that end user insists on new methods that are not mentioned or defined earlier. There are several reasons for that but the important perspective towards the end user is the outsourcing supporter wants to get profits rapidly, which are linked with business on the other hand, it needs modification in process, technological trends, performance measures and recruitment of human resource (McCray, 2008). 6.7. Civilization and Communicational Issues Cultural conflict between consumer and service enabler is a very important issue in outsourcing. However in this era where worldwide economic situation is quite different either at national level or when we talk about regional culture. In addition, corporate culture could be different from client and service provider’s perspectives and it can include different standards in terms of style, speed, decision making and organizational arrangement (McCray, 2008). One more feature of possible business or organizational cultural clash is the facts of communication in provisions of distinct inhibitors, variety of languages that are used for the communication at national or international level. In this scenario, this aspect of language either verbal or non-verbal affects the feature of mutual understanding about outsourcing. This will create problems when we work with the people at remote locations (McCray, 2008). 6.8. Job losses due to Outsourcing Most of the workers now believe they might lose a job for the reason that their organization is outsourcing that job to a foreign country. On the other hand, nobody actually knows the number of jobs that has been outsourced to other countries. According to various researches, more than 400,000 jobs earlier done in the United States are at the present performed out of the country through contractors. So, it is a really a worrying trend due to the outsourcing. Moreover, it is affecting the economy situation of the countries as well as people (Griswold & Buss, 2004; Agencies, 2004). 7. Recommendations The corporations should consider the following aspects when they decide for outsourcing: (Turban, et al., 2005, p. 616) Understand the project: The Corporation must understand the project, for instance its requirements, the basis of estimated financial advantages, and the techniques for its implementation. Thus, an organization should outsource simply when there are limitation regarding the availability of staff or technical experts. Divide and conquer approach: Divide a huge project into little and controllable components, since it will significantly decrease overall huge risk and offer the corporation with an exit strategy if some piece of the project fails. Align incentives: Develop agreements according to nature of work and activities that can be determined exactly can help in accomplishing required goals or improving organization’s performance. Write short-period contracts: The outsourcing agreement should be short-term because the competitive setting transform so quickly. Control subcontracting: The Corporation should be allowed to delegate some of the services to other firm. Since, the agreement should allow the corporation some power over the situations, encompassing selection of vendors. Do selective outsourcing: This strategy is used by various organizations who desire not to outsource the greater part of their IT, on the other hand, to outsource certain sections for instance, system integration or network security. It gives them control over their IT department. 8. Conclusion Outsourcing is emerging as a well-liked trend in the IT world. Organizations are more and more accepting this fashion to gain competitive advantage over their competitors. Thus, they outsource some of their IT needs to outside firms and put their concentration on other important organizational issues and departments. Outsourcing is not a new term for the businesses since a lot of organizations at the present use some kind of outsourcing in order to run their business effectively. Additionally, outsourcing brings a lot of benefits and opportunities for the organizations on the other hand there are also numerous worrying trends associated with outsourcing. 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