Is It Worth Not Outsourcing Information Technology and Keeping Operations Domestic?
The report on the importance of IT outsourcing asks the question is it worth not outsourcing information technology and keeping operations domestic and then answers best possible solution of it. The outsourcing of information technology is associated with various issues in the implementation of IT outsourcing but it has achieved highest level to increase the competitiveness of the user or client organizations to reduce costs, increase their learning and knowledge and improve their business efficiency due to best quality services from the outsourced vendors. In the global commerce and competition, IT outsourcing has been highly effective and useful due to cost efficiency, productivity, learning and experience and the development of IT knowledge. The report also described Singapore growth in IT diffusion initiative by the central government which has contributed greatly in meeting their global IT business needs and increasing the future competitiveness and economic development of the country. The outsourcing of information technology in the emerging global market and throughout the world has contributed greatly in achieving short-term and long-term business objectives of the user organization in their relation with service providers.
Introduction
The outsourcing of information technology has become a global phenomenon and various user organizations prefer to outsource their IT functions despite keeping operations domestic. It is worth to outsource information technology despite some contractual and operational level deficiencies. The report identifies the global commerce and competition and how IT outsourcing has contributed greatly in meeting business objectives of user or client organizations to achieve competitiveness in their business operations and administrative functions at lower costs and highest level of efficiency. The report describes various aspects that contributed greatly in the expansion of IT outsourcing and giving it worldwide popularity among top business organizations. IT diffusion model in the Singapore context, development of IT outsourcing in the emerging markets, management of IT outsourcing in the global firm, and outsourcing of information technology worldwide has become so popular that large numbers of business organizations now depend in outsourcing the operations of their business projects. The report identifies that how business organizations have achieved efficiency, competitiveness and excellence in their business operations by adopting IT outsourcing and preferring to get the development of their business projects from outside their regional territories from experts anywhere any time in the world. Trends in IT outsourcing has increased in the recent years with increased level of communication and transfer of information across various organizations in no time and at no costs. Since 1950s, business organizations have adopted IT outsourcing due to their associated benefits like save in their operational costs, improvements in strategic performance of businesses like applications development, programming, development of desktop applications, telecom management and management of operational systems of the organizations.
Global Commerce and Competition
In the global commerce and competition, the outsourcing of information technology has achieved considerable growth among various business organizations around the globe. The report identifies is it worth not outsourcing the information technology and keeping operations domestic and suggests possible solution of it. The outsourcing of information technology is associated with some client related problems that are most common in the process of outsourcing information technology but overall outsourcing of IT proved to be highly effective and useful for various clients worldwide. Some problems in IT outsourcing include not understanding the post-contractual processes and decisions, receiving no support from client leaders, poor mutual understanding in different IT outsourcing contracts at their implementation level, lack of retained or governance team or one that is too small, the retained may not have the right skills required for the new roles, lack of losing key talent or poor knowledge transfer, inability to meet pent up demand of their services, end-user resistance to sometimes adopting new methods, issues of cultural clash between the client and the service provider and such a change does not last long. But despite all these managerial and implementation issues in the process of IT outsourcing, it is worthy to outsource information technology and not to keep operations domestic and client or user organizations should get the benefits of outsourcing with the development of their IT functions with best quality at reduced costs (McCray, 2008).
In the global commerce and competition, outsourcing of information technology is highly effective and useful for user organization and organizations are enjoying cost efficiency, productivity, learning and expertise in the latest software and IT development knowledge. There is no need to keep the operations domestic when there is such a huge opportunity available due to globalization and increased success of IT outsourcing globally. Outsourcing is based on the idea of hiring someone for the development of a specific job that is impossible to do within the regional or domestic boundaries. In business, outsourcing can be found in different industries, whether they are bigger or smaller, simple or complex. During the 1900s, the main objective of the outsourcing was to get the jobs done on labor intensive tasks and doing the business activities outside the core competencies of the user organization, such as outsourcing payroll development system of the organization, printing press outsourcing, inventory system outsourcing, ERP system outsourcing. Outsourcing in the information technology is increasing over the period of time and user organizations are outsourcing certain technical functions to reduce costs and to enjoy quality services out of their territorial boundaries. As the technology is continuously increasing, more sophisticated functions of the information technology firms are being outsourced. Like other utility providers, the new forms of outsourcing also assume to take the responsibility of some highly technical jobs, on behalf of their customers, to make sure the delivery of new services to ensure excellent performance, availability and scalability of the outsourced jobs (Kathawala, Zhang and Shao, 2005).
In global commerce and competition, outsourcing of information technology has become very famous among potential business organizations. Many large organizations have also outsourced some of its information technology functions to the service providing companies worldwide. Due to the popularity and the benefits they enjoy from IT outsourcing, they have now started to outsource all of their information technology functions and business operational activities. Different factors have contributed greatly in the evolution of IT outsourcing including reduced costs, enhancements in their functional productivity, higher quality of delivered IT work on various business functions, high level of customer satisfaction, time to marketing, and management ability to focus on other areas of the some of the major benefits of outsourcing. However, IT outsourcing is also associated with some challenges and risks that’s why it is examined whether or not user firms should outsource their functions and keep their business operations domestic. The outsourcing of information technology is based on the delegation of IT related activities that are associated with decision making, business processes, internal and external activities of the services, effective management and administration of activities according to agree upon deliverables, performance standards and outputs by setting up contractual agreements in between vendors and user organizations. But outsourcing is associated with some hidden costs, diminished service levels, unexpected service levels and outcomes. Despite these hidden costs and diminished service levels, various business organizations prefer to outsource some or all of their information technology functions to get excellence in their business operations and reduce their costs (Dhar and Balakrishnan, 2006).
Singapore and its Model for IT Diffusion Initiatives
Singapore and its model in information technology diffusion give best example of how outsourcing and globalization of IT functions became popular and essential among various business organizations in the world. Singapore is the major hub in Asia in the areas of manufacturing and services sector, it has improved the future competitiveness and economic development which is significantly affected due to the emergence of IT outsourcing and development of e-commerce globally. E-commerce development in Singapore is considered to be highly important from international comparative perspective due to several reasons. Firstly, Singapore is the first country in Asia that was targeted information technology as the strategic sector to promote economic development of the country during the period of 1980s. Singapore has also developed highly advanced ICT infrastructure in the country to meet the global demands before the arrival of e-commerce and internet in the country. E-commerce has represented a disruptive radical technological change and it has given new dimension to the outsourcing of information technology and other growth in the IT functions. Secondly, Singapore has achieved considerable economic growth in the country and become a hub of business activities in the Southeast Asia due to their strategy to attract foreign direct investment and to leverage their technology transfer and to considerably develop their local industries at the competitive level by supplying components and services to meet their customer needs (Wong, 2001).
IT diffusion model in Singapore was adopted in the early 1990s to prepare the country for the next phase of its future development. IT diffusion was known as IT2000 in which information technology resource were used throughout the country to give considerable development the e-commerce and IT outsourcing in the country. The Ministry of Education developed IT Master plan in the early 1997 to revolutionize the learning process in the country. The master plan was not only targeted to increase the learning of individuals to teach computer literacy and information technology but to increase the linkage between learning institutions in IT and the world around it to encourage creative thinking and to generate innovative process to promote education and administrative excellence in the country (Tang and Ang, 2002). The diffusion of information technology was broadly divided into two main levels including macro and micro levels. The macro level model was focused to aggregate various numbers of adoptions considering the user population in the entire diffusion process based on adoption, the numbers of adopters at a time and peak level in adoptions. Users are connected by some social or communication network in this model which allows items to be diffused using the neighboring adopters. The micro-level diffusion was based on modeling each user in their local adoption decisions and in the development of this model, complete knowledge of user to user relationship is essential and the knowledge of influential probability between the two neighboring users. In the development and promotions of IT outsourcing and e-commerce, the diffusion of IT model in Singapore has played a very important role in the Southeast Asia which influenced the other countries to increase their attention on the development and excellence of information technology and to grow their businesses significantly (Luu et al., 2012).
Emerging Markets and their Aspects in IT Outsourcing
Emerging markets are those markets where most of IT outsourcing profits is made and investing consultants help emerging nations to privatize their telecom sector. Such an investment arrangement in the telecom sector can provide world’s best connectivity to the businesses that locate within the nation’s boundaries. Outsourcing is associated with assurance of technology connectivity in the areas where it provides low-cost labor worldwide. Outsourcing structure in the emerging markets worldwide involves entry modalities and government structure that range from full ownership to control without equity, and arm’s length relationship. Outsourcing is also determined as intermediating user organizational functions or transacting through a business contract or deal in terms of market based activities. The information technology market has grown rapidly in the recent years in the emerging markets of the world including the United States. The buying of IT outsourcing services increased from 54% in 2000 to 59% in 2005 and same trends are also reported in other emerging countries. There were some short-term and long-term factors behind the purchase of information technology services based on discrete or project based purchase. In the short-term nature of outsourcing, there was a need reduce costs of the projects due to the current economic conditions while in the long-term outsourcing, the capabilities of the organizations were increased to get an access to new technology solutions through IT utility services like website hosting. In order to know whether or not information technology should be outsourced and to keep the operations domestic, it is necessary to know what potential benefits are associated with information technology outsourcing. The IT outsourcing market is growing steadily in emerging market like China, India, and Brazil. The outsourcing of information technology reduces the operational costs of the business, increases knowledge and awareness of latest technologies and enhances customer satisfaction through best quality IT outsourcing services at lower costs. Both the short-term and long-term factors are responsible for the continuous increase in information technology outsourcing. Short-term factors of IT outsourcing are associated with the need to reduce costs due to economic declining conditions of the world and long-term outsourcing increases the capability of delivering continuous access to latest technology solutions through IT utility (Liao and Reategui, 2002).
In order to examine the research question to know is it worth not to outsource information technology and keep operations domestic, outsourcing of information technology in emerging marketing like Asia, the Middle East, South Africa and Africa shows great appeal for many organizations to outsource their IT projects and to get quality work in limited resources. The outsourcing of information technology in emerging markets means companies develop partnership with service providing companies that establish legal and physical presence in the entered countries, setup necessary systems and processes and develop strong net of local relationship. The outsourcing of IT projects in the emerging markets indicates that multinational and domestic businesses are facing almost similar conditions in these markets, while their outlook and geographical condition differs. Outsourcing gives speed and scalability to the information technology projects as different companies in the developed world can outsource their business requirements to those who are well established service providers than building up own infrastructure (Data, 2013). When user organization outsource their information technology projects to service Provider Company in another country, it gets cost advantage both in labor and raw materials, and achieve highest level of productivity due to low wages benefits. In outsourcing IT projects in different areas, the user organization enjoys highest value of chain integration as it gets extensive integration with suppliers and customers. The more integrated the company is with its suppliers, the more benefits it can develop from such a relationship and strengthen their supply chain management against their competitors and achieves excellent position at their local markets. IT outsourcing also offers opportunities for retail market operations where user firms can accelerate their operations due to modernization, foreign investment, consolidation and privatization. Outsourcing of information technology becomes worthwhile for user organization depending on many factors that influence decision of IT outsourcing based on financial, resource, strategic, managerial and cultural concerns. All these broad categories suggest that outsourcing of IT projects is based on series of forces that work either in favor of outsourcing or against outsourcing. The interaction of these forces finally mold management decision making to outsource or not in the emerging markets. All these factors suggest that outsourcing of information technology is beneficial to the user organization that reduces its financial costs, improves financial index performance, improve cash flows, leverage financial strengths, get an access to external expertise and technologies that are not possible without outsourcing of information technology, build mergers and acquisitions and business transitions, reduce project delivery lead time, enhance business focus, ease globalization, build strategic partnership with experts, ease performance measurements and gives overall solution to the user organization to get best services at lower costs (Liao and Reategui, 2002).
Management of IT outsourcing in Global Firm
Management of IT outsourcing is based on the management of workers who work for the development of desired technology abroad. It is not an easy task to do because it is associated with cultural differences to manage in outsourcing the IT projects. The outsourcing activities of a firm have become a very important issue in the modern day world with politics, welfare economics, international business and business management. The management of IT outsourcing is not a new phenomenon and getting development of information technology projects in locations other than the country in which they are used by the user organization. The world has seen dramatic increase in the outsourcing of information technology in which domestic firm sends some part of value added activities, whether the development of payroll systems in IT, the development of inventory or ERP systems, or software writing developed for another country continuing to sell its output into the domestic market. It helps domestic customer to transfer money to foreign producers other than local by draining liquidity out of the domestic economy. The phenomenon has developed the management of global firm in IT outsourcing to generate value for product design, manufacturing, support of services sector, services support, distribution services, customer services and the development of different software development projects. All these activities are performed in multiple differentiated locations all over the world by using intra-firm trading activities to tie up operations into an efficient whole, and then selling unique mix of goods and services at differentiated market places around the world and enhancing the position of these goods and services to original home market (Tallman, 2011).
The management of IT outsourcing in the global firm has led to significant increase in the exploration of new knowledge and expertise, cost savings and improvements in the bottom line. Some companies have even achieved greater returns by outsourcing their projects worldwide and using their global partners to drive innovative strategies to develop new software, innovative products and services in the information technology, faster service time-to-market and their successful entrance into new markets. It has made considerable shift of traditional outsourcing to the collaboration globally and getting competitive advantage over time without any need to be restricted their operations within the domestic markets. The outsourcing of information technology is worthwhile to the business organizations as it has increased their efficiency, increased global technology standards with open architectures, and developed a powerful collaboration tools and infrastructure by outsourcing their IT projects. Furthermore, the global collaboration of the information technology has aligned strategic development, organizational design, product development, program and project management, platform specification and intellectual property management of the organization involved in the outsourcing of their information technology projects at the global level (MacCormack et al., 2007).
It is Worth Outsourcing Information Technology?
In today’s global economy, the outsourcing in information technology has become very common among businesses operating in this line. Some large business organizations are successfully outsourcing their information technology operations to reduce costs. The report identifies is it worth not to outsource information technology and keep operations domestic. But the outsourcing of information technology projects have increased in the recent years and business organizations prefer to outsource their projects meeting their business needs. Different factors have contributed greatly in the outsourcing of IT projects with reduced costs, enhanced productivity, higher quality of IT development, higher level of customer satisfaction, time to market and focusing on the main areas of the benefits of outsourcing. At the same time, outsourcing of IT projects pose some risks and challenges to business owners that’s why report indicates that operations of information technology should be done domestically. The outsourcing of information technology is based on delegation of some or all IT tasks to professionals in other countries. These tasks are offered to them to enhance the quality of work and considering the IT related activities in business processes, internal activities, and services to external providers who manage and administer these activities according to already decided deliverables and performance standards. But considering some risk factors in IT outsourcing it is essential that organizations should be careful in planning of what knowledge to be kept in-house and what to be outsourced. Companies can also face some other risks to outsource information technology in the formulation of scope and decision making on budget and schedule estimates (Dhar and Balakrishnan 2006).
Business world has shrunk in the recent years and same trends of outsourcing information technology have also been adopted by the IT industry unlike traditional models of economy. The level of communication has increased in the modern world and it is now possible to transfer the information across the globe in no time and at lower costs. It is not essential to produce goods at the site of consumption as the consumer of information not cares where the information is generated and how much time it will take to be on time. The non-tangible nature of the information technology has made this business highly attractive to be outsourced to highly qualified professionals. Is it worth not outsourcing information technology and keeping operations domestic is not good in the modern world because IT outsourcing is associated with knowledge and learning produced through outsourced activities and business processes. In outsourcing, the property or decision rights of a user organization over information technology are transferred to an external organization. The IT outsourcing is based on high expectations of the user organization but it is also associated with some bitter disappointments. The outsourcing industry has shown considerable increase in the recent years and worldwide spending on the services of IT outsourcing have reached to a milestone of $64 billion in 2001 and increasing with a constant rate. But despite these growth patterns, both the user organization and the vendors are struggling to realize about the value proposition of outsourcing as vendors deliver economic and management benefits to their customers outweighing contractual costs (Levina and Ross 2003).
Since the early 1950, business organizations are using outsourcing of information technology (IT) to get the benefits of best services from worldwide at reduced costs. Early period of outsourcing was associated with the extraordinary benefits of saving operational costs, but in the recent times, the motivation to outsource IT projects has been shifted to strategic business performance improvements. Large numbers of IT functions has been outsourced like programming of business projects, applications development, desktop applications development, telecommunication management and operational systems. The associated value of knowledge and learning in outsourced activities has given new prospects to the outsourcing industry that has grown with a rapid pace in the recent years. In performing some activity, business organizations learn more about the development of some specific product or service. It gives greater knowledge to the business organizations to be competitive with their competitors after getting the development of their outsourced projects at reduced costs with extraordinary benefits. But at the same time, outsourcing of IT projects cause some severe problems to the pervasiveness in IT functions of most of the business organizations. The lack of appropriate IT resources that the user organization outsources may reduce the capability of the organization to compete well. When some particular function, knowledge or activity or non-core IT activities are outsourced, they may lead to the firm’s capability of outsourcing wide array of other related competencies, or deteriorate some of retained competencies and activities of the organization, particularly if the information technology projects are outsourced among large numbers of subunits considering the business needs of a user organization (Singh and Zack 2006).
The business outsourcing can be done anywhere at any time; whether business projects are small or large, simple or based on huge complexity. During the period of pre-1900, outsourcing was only focused on the production of labor intensive activities and business activities that were performed outside the core competency of the organizations, like the outsourcing of the printing press, janitorial work and food preparation, and recruitment of seasonal migrants’ farm workers. In the industrial society, outsourcing was expanded to the manufacturing industry to get the reduction in costs after great depression period in Western economies. Most of the large business organizations outsourced their manufacturing operations like outsourcing of automobile to different producers and metal, glass and rubber products. Latest developments in the considerable growth of information technology (IT) have given companies new opportunities to outsource some of their technical functions that are beyond their technical competencies. For example, in the earlier outsourcing of information technology, payroll processing was outsourced by user companies to vendors worldwide. When technology increased considerably worldwide, other information technology operations and functions were also outsourced like data management, document storage functions and technology and maintenance of their platforms. Like other established utility providers like energy providers, the new outsourcers would be responsible to offer best services at reduced costs on behalf of their customers, and to manage the delivery of new services while ensuring their availability, scalability and performance. Therefore, companies have adopted global outsourcing strategies in the information technology because they want to build sustainable competitive advantage and competitive flexibility in their worldwide operations (Kathawala, Zhang and Shao 2005).
The strategic value of IT outsourcing is highly focused on the knowledge and learning of information technology and reduction in costs to get competitive advantage over others. It is worth outsourcing information technology due to highest level of productivity and information sharing organizations have achieved over the years with no need to keep their operations domestic. The business activities that contributed greatly in the business growth of user organizations and service providers include the production of specific outcomes due to IT outsourcing, knowledge sharing that can be viewed as a platform from which many activities and outcomes can be derived and increased level of learning is enjoyed. Outsourcing maintains and increases the level of knowledge and learning associated with the activity which makes a profound impact on the long-term ability of the organization to compete than merely outsourcing its activity itself. But some organizations do not take knowledge and learning into considerations with outsourced activities as they find it highly difficult to find out the economic or strategic value of such intangible assets. Outsourcing of information technology is associated with some unique issue like the pervasiveness of IT functions in most user organizations. When executives consider it non-strategic in nature, they find that information technology is a source of strategic innovation and business strategies can be greatly influenced by emerging technologies that are only possible through the outsourcing of information technology. But the lack of appropriate IT resources that are outsourced by user organization can limit their ability of competition. The organizations face the deterioration of their retained competencies and activities, particularly in the areas of information technology resources that are shared among large numbers of subunits and affect the shape of most organizational processes (Khidzir, Mohamed and Arshad, 2013).
Conclusion
The report has identified that despite various issues in IT outsourcing, the outsourcing of information technology has become very popular throughout the world. The report has identified various points like the global commerce and competition, IT outsourcing in emerging markets, Singapore IT diffusion model, and the overall development of IT outsourcing in the world. The report has answered the question on IT outsourcing ‘is it worth not outsourcing information technology and keeping operations domestic’ in a way by highlighting all important points that determined the importance of outsourcing some or all functions of information technology to get business competitiveness and efficiency through reduced costs, best quality of products and services developed due to IT outsourcing and getting competitive edge over their competitors in this world of competition in information technology.
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