Introduction to Outsourcing Strategy

Information Technology OutsourcingIn any organization information technology department, information system operations remain the predominant function outsourced, other functions are also being performed by external service providers and the relationship is between outsourcing and certain demographics: size, industry is formation intensity. The results suggest that system operations remain being performed by external service providers. Further, industry and information intensity has some influence on the extent of outsourcing of certain functions.The first reason is cost reduction, trying to remain competitive and up-to-date is becoming a financial burden to many organizations. This is true particularly in fields, such as banking and financial services, health care and manufacturing. Hiring outsiders to handle part or even all of its information system often helps an organization to provide better services and maintain a competitive advantage. The information technology industry choice of outsourcing factor is related to size, industry type and information technology. The second reason is technological and/or human resources in the management of the information technology infrastructure skill improvement. The information technology department outsourcing service to external service provider, includes the degree of internalization of technological resources and the degree of internalization of human resources. Some economists defined internalization of outsourcing service is as ownership is by the focal organization which takes on full control with profit and loss responsibility. Also who define outsourcing is as involving a significant use of resources, either technological and/or human resources, external to the organizational hierarchy in the management of the information technology infrastructure. So the information technology external service providers includes: applications development and maintenance, systems operations, networks/telecommunications management and user computing support, system planning and management purchase of application software, but excludes business consulting services, after-sale vendor services and the lease of telephone lines etc. outsourcing services.The third reason is economics of scale in areas of hardware, software. This pressure is seen as the most significant factor driving today's corporate interest. An outsourcing service provision might be in a position to exploit economics of scale in areas of hardware, software and staff since it pools different kind of technological projects from many service receivers. Outsourcing information technological service can reduce the corporate's cost with the high level of IT investment, there are increasing pressures to move away from fixed expenditure, corporate overhead towards a more direct variable cost approach to control the IT operations. The IT costs can become predictable for overruns is often placed on the service provider. Outsourcing service can allow the service to gain immediate access to competitiveness in delivering products or services as well as to avoid of obsolescence risk, due to the changes in the nature of the IT infrastructure, the risk of obsolescence is high. Outsourcing can allow the service provider has the ability to diversify these risks across a broad range of service receivers. However, long term contracts might in spread the risk, the weakness is back to the receiver. It seems outsourcing IT service has also these disadvantages: such as, loss of flexibility or managerial control.