Outsourcing can be defined as the process of contracting the firm’s Information Systems and Information Technology and other functions to external vendors who specialise in providing these type of services. Companies do this in order to concentrate on their core competencies and capabilities without worrying about their peripheral activities.
Outsourcing is done by transferring the residual IS organisation’s staff to the vendor who then becomes their de-facto employer. Companies can never manage to fight on all fronts and expect to emerge winners. So to win the market control war they can concentrate on their core activities and generally outsource the rest. This is called Total Outsourcing where companies outsource more than 80% of their functions. Even when the residual IS organisations go in for total outsourcing, they have to retain a small in-house team "which is capable of fulfilling a number of critical roles relating to strategy, control and responsibility both for running of the outsourcing contracts and also for ensuring that the vendor can deliver on current and future business requirements"(books name).
Sometimes the companies only outsource a part of their function which is called Selective Outsourcing. In such cases, a large number of staff still remains in-house. But sometimes a few problems can arise-like the employee morale may go down if they feel that the staff working with vendor is better off. To avoid this every member of the staff has to be educated on what outsourcing involves.
The residual IS organisations may have huge cost savings when they outsource their non-core activities. Outsourcing also "simplifies the management agenda"(book name). Whatever might be the degree of outsourcing residual IS organisations need to fulfil a number of critical tasks like strategic IT thinking in relation to the business, business development in relation to any areas outsourced, ability to integrate systems in both business and technical sense, capability to place contracts and negotiate deals effectively with the vendor (called informed buying), contract management and monitoring, in-house intermediating and managing and exploiting vendor relations.(Willcocks & Fitzgerald, 1996). However different organisations make different decisions on how much staff is actually needed for this.
One of the key issues to be addressed in outsourcing is the making of the contract between the organisations. Sometimes the alliances are for very long periods stretching into 10 years per contract. So, the contract should have flexibility from both sides involved. Both sides should have mutual interest in the relationship – otherwise a troublesome relationship might emerge.
The residual IS organisation should also see that the standards it requires are provided by the vendor but eventually some things occur which are out of control and in such cases adequate structures of protection may be put in place.
The organisation should look for vendors that are likely to be stable after 10 years–10 years of changing technologies and markets will definitely affect the vendor if it doesn’t encourage modernisation and change.
Finally, there should be a flexible, evolving relationship between the parties involved to get a good management and corporate culture fit in order to successfully manage outsourcing.
Taking all this into consideration, the residual IS organisation should remember that it is easy to enter into a contract for outsourcing but difficult to sustain and nurture it and nearly impossible to again in-source if something goes wrong.
1. Information Management (1996)
2. Corporate Information Systems Management : Text and cases (1998)
--- F.W.Mc Farlan, L. Applegate,
J.L Mc Kenny
Source: Essay UK - http://www.essay.uk.com/coursework/outsoursing-issues.php