Posts Tagged ‘Outsourcing’

Outsourcing Information Technology Functions

Friday, March 27th, 2009

NOTE: These papers are meant to make you think and contain thoughtful opinions.

            In spite of current economic conditions, outsourcing information technology functions is not an easy task for any organization. Reducing costs of labor is one reason for outsourcing, but should never be considered exclusively. Organizations need to consider strategic planning, customer service, and the associated costs of outsourcing. This paper will examine various aspects the organization is required to assess in regard to outsourcing information technology functions.

Information Technology Outsourcing Analysis

Determining Factors

            Organizations have been outsourcing production line functions for decades. The reason was to reduce front-line costs to provide a competitively priced product for consumers to purchase. Some of the factors facilitating production line outsourcing were: government deregulation of trade, lower labor costs abroad, and the high availability of lower priced labor with the technical skills required to produce the organizations product.

            Information technology is now experiencing the same outsourcing process as traditional production line tasks. Commoditization of network services has presented a business environment that is inclusive of a majority of the World’s cultures. Foreign universities and governments have noticed the globalization of network services. Trained and lower paid professionals. Universities abroad are now saturating the information technology field with highly trained professionals.

Strategic Planning

            Strategic planning is an evaluation of where the market is going and the organization’s positioning in regard to the market’s movement. Information technology needs to follow pace with the organization’s business sector. Outsourcing can have a positive and or negative effect on how the Information Technology Department responds to sudden market changes.

            In-house developers provide an organization with the ability to meet strategic planning and emerging market goals. However, many organizations do not have the capitol resources to maintain a full-time development staff. Organizations that do not have resources to provide for a full-time development team are left with outsourcing information technology tasks.

            Outsourcing information technology functions carries the risk of the organization not being able to meet the needs of developing markets ahead of the competition. Outsource vendors require meetings with management to discuss changes. These meetings often do not occur until a meeting is planned at a future time. After the meeting, the outsource vendor will need time to evaluate the proposal, then respond to the organization as when the vendor can implement the changes to meet the developing market. The time required to perform the analysis may cost the organization a competitive edge in the emerging market.

Customer Service

            Customer service is vital to any organization. Information technology not only deals with the organization’s external customers, but also with the internal customers, employees. Outsourcing customer service will provide savings in regard to the cost of labor, but the organization needs to ensure outsourcing does not alienate the customer who purchases the service. Examples of alienating customer would entail extensive on-hold time and or a lack of knowledge concerning the organization’s products or services. Many outsourcing contracts stipulate a length of time, so the organization needs to realize that the outsourced vendor may cost more in sales revenue than savings in labor costs before the contract has ended.

            Customer service can benefit from outsourcing. The upfront benefit would be reducing the costs associated with labor; however, the organization can benefit from the outsource vendor’s expertise in specific areas. Call centers are a primary example of an organization and outsource vendor symbiotic relationship. Organizations that specialize in customer service and are located in various geographical areas can provide 24/7 customer support, because when the call center is not busy with one client’s customers they are able to offset any down time with another client’s customers.  Specialization of tasks is a benefit of outsourcing.

Costs Associated with Outsourcing

            Determining the associated costs of outsourcing information technology require study and metrics. Stephanie Overby (2003) article, “The Hidden Costs of Offshore Outsourcing” describes some of the hidden costs involved with outsourcing. Organizations need to consider these hidden costs prior to committing to an outsourcing project or the organization will be disappointed when the return on investment is not forthright. Some of these costs are:

·        Selecting a Vendor: .2% to 2% of the annual contract.

·        Transition: Requires three months to one year in which the organization will not experience cost of labor savings.

·        Layoffs: Organizations will need to pay current employees salaries to train the off shore organization’s personnel. This may also curtail a large severance package for current employees to stay.

·        Culture: American workers can be expected to participate in the decision making within an organization while many other cultures frown upon work suggestions.

·        Ramping Up: Personnel within the organization outsourcing may not have the certifications to work with the vendor’s software, so the vendor will need to place more personnel onsite to make up the difference in skills.

·        Managing an Offshore Contract: Organizations will need to spend considerably more time with expense reports to keep track of actual work performed by the vendor. (Overby, S., 2008)

Many costs are associated with outsourcing; however the largest cost may be the intangible damage to the organization’s employees. Employees have cares and concerns outside the organization. Organizations that follow the path to outsourcing will not only need to consider the balance sheet costs, but also the costs of losing horizontal silo communication and employees who freely gave suggestions to strengthen the organization.


            Outsourcing information technology concerns has positives and negative aspect to be considered by the organization. Strategic planning and customer service may suffer as a result of the organization not having the ability to meet the new demands of emerging markets. On the other side of the coin, the organization will be able to obtain skill sets from outsourcing that might other wise been inaccessible like a call center for a small business. Organizations need to consider all aspects of outsourcing information technology functions and the effects upon the organization’s culture and not just follow the outsourcing trend.


Overby, S., (2003). “Hidden Costs of Offshoring.” Retrieved April 28, 2008 from _Offshore_Outsourcing/8.


Mike Kniaziewicz, MIS 

What is outsourcing?

Wednesday, November 19th, 2008

Outsourcing is nothing more than obtaining resources that are not obtainable within the organization. When an organization is holding a meeting they outsource the lunch, because it does not make business sense to build a kitchen, stock it with items and employees for a once a month meeting. A prime example of outsourcing at its finest is our daily lives.

Think about what occurs in your daily life. Are you able to drill and refine petroleum in your back yard? No. So you outsource the fuel requirements for your car and home to another organization. However, the outsourcing you may be expecting to read about are the job loses to overseas organizations. Except the term used in many circles for that type of outsourcing is off-shoring.

Off-shoring is used by several organizations to reduce labor costs. The easiest jobs to off-shore are information technology jobs. The reason is because of the World Wide Web and the commoditization of bandwidth. Another reason is the lack of face-to-face interaction between the information technology community and customers.

Management needs to consider a major downside to off-shoring; the ability to develop emerging markets. It generally takes two years to bring an off-shored department up to the point the parent organization starts to experience returns on the investment. Think about all the changes that have occurred over the past two years in regard to business and e-commerce. Do large organizations have the ability to shift that rapidly if they have off-shored their information technology?

Large organizations are starting to falter because they are unable to meet the demands of emerging markets. There is a boom occurring with small technology based organizations. The reason for the boom is the small business’s ability to shift in mid-stream to address emerging markets. Another reason is the small business’s ability to avoid the bureaucracy of larger organizations.


Mikhail Kniaziewicz, MIS