Essay/Term paper: Information technology outsourcing

Essay, term paper, research paper:  Economics

Information Technology Outsourcing


"Information Technology outsourcing is the contracting out of part or
all of an organization's IT activities." New trends have included operations,
programming, and technology planning. The main reason for information
technology outsourcing is to gain immediate economic gains for the company,
usually through savings. Financial motivations aren't first on businesses minds
though; other strategic objectives are.
Outsourcing can make it easier to downsize. Because you are bringing in
outside help, and can cut back on fixed salaries, the company becomes more
variable. Outsourcing leads to tighter linking of strategy and IT. Knowledge
which usually flows slowly can flow freely, and a company has more access to
outside technology. Plus businesses receive information faster than other types
of hierarchical communication, and the resources are endless. Outsourcing can
unlock organizational structures. "The unlocked IT organization can provide a
better mechanism for costing user requests, prioritizing technology initiatives
and controlling expenditures." It offers the benefits of both systems involved.
Another important goal that IT outsourcing takes on, is reducing technological
risk. By outsourcing your needs you know that that the employee know what they
are doing.
Some of the problems IT outsourcing may encounter are, loss of strategic
control, risk of technological obsolescence, limiting of long-term flexibility,
difficulty in benchmarking initial contract, hostage to additional charges,
high exit or switching costs, limited choice of vendors, the fixed nature of
legal contracts, legal exposure, from dissatisfied former employees, and
cultural conflicts.
The people doing the outsourcing for the companies are sometimes the
life's-blood of that company. If the outsourcers want more money, then they are
almost obligated to give that money. This is usually the case when the
contractors are bringing new technology into the system.
High exit or switching costs entail the switch-over costs the company
must shoulder if they decide to end the outsourcing and hire full time employees.
It is important not to put too many resources at the hands of the contractors.
Limiting this will ease the switch-over costs.
Legal issues also creep into the picture when a company chooses to
outsource. Some companies have problems with employees that are not happy with
their current arrangement or are mistreated. There tends to be a high
unionization with these kinds of workers. A company can not only be held for
its actions but also for the actions of the outsourcing agent.
Finally an important factor is cultural conflicts. What is excepted in
one culture may be different in another, causing worker and management related
problems. For instance the role of leadership in an organization or the number
of hours a worker is expected to work a week. These variables have to be
scrutinized by the outsourcing company.