Outsourcing
Overview of Outsourcing
As
explained by Chapman & Andrade (1998) “Outsourcing is the movement of computer-based
functions from within an organization to an external environment” (p.
2). Chapman & Andrade (1998) also emphasized that outsourcing entails
the movement of any part of the Management Information Systems (MIS)
functionality to an outside agent.
It
is important to realize that outsourcing is a crucial part of today’s
world of Information Technology (IT). In fact Ripin & Sayles (1999)
explained that multibillion-dollar outsourcing contacts are no longer
unusual. They further elaborated that almost ten percent expenditures
for IT probably involve an outsourcer.
Ten
reasons why companies outsource:
Companies
outsource for a variety of reasons. Table 1 represents
a compilation of a report covering a series of studies conducted by
the Outsourcing Institute since 1991 in which over 1,200 companies were
surveyed, as well as a 1995 Trends Report (“Top 10 Reasons,” n.d.).
Reason to outsource |
Benefit/Issue Categorization |
|
Reduce and control operating costs |
Strategic: long-term benefit |
|
Make capital funds available |
Strategic: long-term benefit |
|
Free resources from other purposes |
Tactical: near-term issue |
|
Resources are not available internally |
Strategic: long-term benefit |
|
Improve company focus |
Tactical: near-term issue |
|
Function difficult to manage or out of control |
Tactical: near-term issue |
|
Accelerate reengineering benefits |
Strategic: long-term benefit |
|
Shared risks |
Strategic: long-term benefit |
|
Increase cash flow/cash infusion |
Strategic: long-term benefit |
|
Access to world class capabilities |
Strategic: long-term benefit |
Table 1 - Top ten reasons why companies outsource
How to identify
the probability of success of outsourcing?
Outsourcing ventures may be categorized according to their probability of success into three main categories a) Generally successful b) Situationally successful and c) Almost assured failure (Chapman & Andrade, 1998).
1) Candidates for generally successful outsourcing
a. Data processing operations
b. Network management
c.
Help desk functions
2) Candidates for situationally successful outsourcing
a. Payroll systems
b. Personnel systems
c.
Benefits systems
3) Candidates for (almost) assured failure
a. Online reservation systems for travel industries
b. Deposit systems for banks
c. Loan/Sales systems for financial companies
d.
MRP systems for manufacturers