FREE ESSAY ON IT OUTSOURCING

IT OUTSOURCING

INTRODUCTION
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 managers to focus on the
development of a new IT infrastructure. Underlying the outsourcing effort is a
fundamental strategy to offload legacy applications and operations so a firm could focus
on developing new strategic application to support the global business processes, which
were being reengineered.
THE PROCESS OF OUTSOURCING
There are many ways to manage IT outsourcing since every company has different culture,
strategy, structure, people, and process. Also, many important issues such as structure,
Information management operating processes, management processes, human resources
management should be clarified. 
However, I'm here going to use Xerox's outsourcing process. A company may go through 5
phases to reach a successful outsourcing; Fact Gathering, Request for Proposal and Data
Gathering, Feasibility and management Approval, Baseline Building and Evaluation, Due
Diligence and Contract Awarded. At first, information management (IM) collects the facts
the company faces and design team recommendation. Then IM request for information to
numerous vendors. After compare their response with evaluation checklist which includes
technical, HR, financial, contractual factors, IM conclude the feasibility of outsourcing
and make recommendation for management. Then, with the Management's approval, IM start to
build best-case model and contract terms while evaluate the vendors' proposal using
evaluation checklist again. Then, the final negotiation and selection for contract
development will be made and, finally, terms are finalized and contract is drafted.
THE PROBEMS IN OUTSOURCING
Many outsourcing contracts are structured for very long periods in a world of fast-moving
technical and business change. Eight to ten years is the normal length of a contract in
an environment in which computer chip performance is shifting by 20 to 30 percent per
year. Consequently, a deal that made sense at the beginning may take less economic sense
three years later and require adjustments to function effectively. Exacerbating the
situation is the timing of benefits. The first-year benefits are clear to customer, who
often receives a one-time capital payment. The customer then feels relieved to shift
problems and issues to another organization. 
The situation from the outsourcer's perspective is just the reverse. The first year may
require a heavy capital payment followed by the extraordinary costs for switching
responsibility to them and executing the appropriate cost-reduction initiatives. All this
is done in anticipation of a back-loaded profit flow. At precisely the time the
outsourcer is finally moving into its earnings stream, the customer, perhaps feeling the
need for new services, is chafing under monthly charges and anxious to move to new IT
architectures. If the customer has not had experience in partnering activities before,
the relationship can develop profound tensions.
The evolution of technologies often changes the strategic relevance of IT service to a
firm. From the customer's viewpoint, assigning a commodity service to an outsider is very
attractive if the price is right. Delegating a firm's service differentiator is another
matter. The customer that made the original decision on efficiency will judge it
differently if using effectiveness criteria later.
CONCLUSION
IT outsourcing has so many positive effects for a company even though it still contains
various problem needed to be solved. In the Internet age, any company may want to focus
its internal staff on moving it to the environment that will support them tomorrow and
outsourcing could be one of the best solutions. Also, outsourcing is really more of an
integration of two separate businesses to be successful. Both want to take the best parts
of each culture and put them together. In addition, critical success factors including
existence of a multi-years, corporate commitment to the IM strategy and outsourcing, and
quality culture and attitude should be considered in outsourcing.