Outsourcing Information Technology

is a word that brings many different opinions to the table. Positive and negative feelings about outsourcing leave many organizations questioning whether or not it is a viable option to outsource information technology functions. The goal of this paper is to try and break down some of the risks and benefits to outsourcing and help any CEO or CIO come to a decision whether or not his organization will outsource information technology.

Risks

Before an organization decides to use an outsourcer for IT, management needs to consider the risks involved.

Loss of Control

The organization is invested in itself. Its employees have internal knowledge and a better understanding of the organization then does any outside company. According to Axelrod, “there are fundamental differences in motivation, goals, and attitude between internal staff and employees of outsourcers”. These differences may lead to poor IT service.

Viability of service providers

Axelrod mentions the risk of the service provider itself. Is it a viable company? Will the service provider be around in the next year? If the outsourcer fails, the organization will be left without “critical services and systems” (Axelrod).

Quality of Service

When an organization decides to outsource, one reason it does so is the organization may feel it cannot successfully perform the IT services it needs to at a satisfactory level. However, a risk of using outsourcing for IT is the quality of service the outsourcer brings to the organization. If an outsourcer is not carefully chosen, the level of service provided can be so poor as to be detrimental to the organization. The outsourcer can be fired by the organization, but where will this leave the organization’s IT services?

Lack of expertise

“Customers should beware of bait-and-switch tactics” (Axelrod). In other words, an outsourcer may state it has the knowledge to perform certain actions or utilize a certain programming language, but when the outsourcer begins work for an organization, the necessary knowledge the organization needed for its IT functions is just not there.

Morale

Morale is an important risk to consider. Outsourcing “raises employee concerns about job security” (Cashman, Rosenblatt, and Shelly). If the organization has its own IT department, the IT staff will want to work for a company they feel is committed to use the IT talent it has. If the organization decides to outsource its IT functions, the IT personnel may decide to leave and work for the service providers themselves. This isn’t just with IT staff, either. If other employees learn the organization is outsourcing IT, these employees may start to wonder what other functions will start to be outsourced.

Hidden Costs

Some costs are easily definable. What about intangibles? Outsourcing can bring about costs to the company that were unable to be planned for. The outsourcer may be in financial distress, but still providing services (Axelrod). How is this going to impact the costs of services if the outsourcer cannot pull itself out of a hole? Acquisitions and mergers can bring about changes in cost to IT services provided (Cashman, et al., 2003). According to Axelrod, hidden costs are either due to oversight, or unplanned, or hidden intentionally (2004). Both types of hidden costs need to be considered before deciding to outsource.

Benefits

Even though risks are involved with outsourcing, many benefits exist as well which lead organizations to outsource IT.

Lower costs

Cost is one of the major benefits which organizations consider before outsourcing. How much will it cost us to outsource our IT compared to paying our own employees and making sure we have all the necessary hardware and software to perform all the IT functionality we need? For many organizations, outsourcing saves the company cost – especially if it has no IT department to begin with.

Less time to implement

Using an outsourcer for IT eliminates time spent for a company to design, program, test, document, and maintain networks, hardware, and software (Cashman, et al., 2003). A quality outsourcer has already done the IT task multiple times for other companies, and should be an expert at all the IT tasks the outsourcing company needs.

Reliability and performance

If an outsourcer’s sole reason for business is IT, the outsourcer should have documentation proving what it has done, and metrics to show what it has done well. Any problems with IT tasks will be sorted out over time by the outsourcer. If the outsourcer provides a quality service, “it almost certainly has been rated and evaluated by independent reviewers” (Cashman, et al., 2003).

Systems support

Using an outsourcer for IT services, provides the organization with a greater breadth of IT services support. Most outsourcers provide support to many other organizations. When an organization has an issue with any IT function, they can call the outsourcer. The outsourcer will fix the issue, or be able to find the solution, leaving the organization to focus on its other business needs.

Extra Manpower

For smaller companies that do not have the manpower, outsourcing is an excellent means by which to get something done without the need to hire additional employees.

Specialized Skills

Organizations want to focus on their primary business processes to maximize revenue. Many times, these organizations do not have the skills to setup their own IT systems. Hiring an outsourcer helps to bring to the company a specialized skill set. The outsourcer’s primary function is providing IT. Also, using outsourcing for IT services is excellent for those organizations that may only need a small, specialized information system, perhaps a new software package. An outsourcer brings the skills to provide this service, and prevents the need for the organization to hire new employees with this skill set; especially if the employees’ services were only needed on a short-term basis.

Factors to consider

Once an organization decides to outsource, one should consider the following factors before finalizing any agreement (e-Zest, 2007):

Insurance

Simply put, does the outsourcer have any form of liability insurance to protect against loss, or damages?

Third Party Suppliers

If choosing to outsource, is the outsourced company going to provide all tasks, including maintenance, or is the outsourcer going to use any other 3rd party? This information should be provided, and agreed upon beforehand.

Software licenses

If the organization has purchased any form of licenses for software, which the outsourcer will be working with, it is necessary the outsourcer is covered under the licenses as well.

Ownership of information

When information technology leads to the design and use of proprietary information, the details need to be agreed upon whether the outsourcer will own this information, or the company.

Contract start and length

When outsourcing is used, the organization needs to determine when the outsourcing is to begin, and how long is the organization going to outsource its IT functions. At some point, the organization may decide to do everything in-house.

System Access and Security

This is an important factor when deciding to outsource. Much of an organization’s data is sensitive, and must be secure. The organization will have in place who can see what and do what, but this needs to be extended to the outsourcer, also. If anyone working for the outsourcer can see whatever, whenever, this can lead to security breaches.

Asset Ownership

Along with determining who will own certain information, asset ownership needs to be determined as well. The resources used to build systems or software can be expensive. Does the outsourcer purchase these assets and own them after the organization does not need them, or does the organization pay and own the hardware and software resources?

Disaster Recovery

Every organization should have a disaster recovery plan. What about the outsourcer? If an organization chooses to outsource its IT functionality, and the outsourcer suffers from a disaster, what will happen to the organization’s information systems? The organization needs to have reassurance the outsourcer has in place some form of disaster recovery which will protect the organization’s IT functions as well as the outsourcer.

Application to strategic planning

When considering a strategic plan, and looking forward to the future based on an organization’s vision plan, outsourcing may need to be considered. Depending on the IT needs of the organization and where it wants to be in the future, the organization may realize it cannot perform all the IT functions itself. The organization needs to place in its strategic plan whether or not it plans on finding ways to implement the IT services themselves, or to outsource. The strategic plan needs to be laid out explicitly for shareholders and other executives to get approval for the plan, and outsourcing may be a consideration.

Conclusion

The outsourcing of IT services has many risks, but also has many benefits. Any organization needs to look at the pros and cons of outsourcing its IT services when looking forward to the future. A strategic plan is designed to help an organization meet its vision for the future, and when IT services are involved, the organization may not be able to effectively provide the services itself. Considering all the factors will help an organization put together an effective plan for the future.

References

Axelrod, C.W. (2004). Outsourcing information security. Norwood, MA: Artech House Publishers.

e-Zest Solutions . (2007). Software development outsourcing issues. Retrieved from http://www.e-zest.net/Outsourcing_Central/outsourcing_issues.htmlCashman, T.J., Rosenblatt, H.J., & Shelly, G.B (2003). Systems analysis and design (5th ed.). Boston, MA: Thomson Course Technology.

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