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Essay: IT Outsourcing (benefits, issues, case studies)

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Introduction

Outsourcing is a business practice of having a third party perform services that traditionally were performed by the company’s own employees and staff. Businesses use IT outsourcing for a wide range of ICT infrastructure, business processes and application services. The impetus behind IT outsourcing is often the perceived benefits and effectiveness that IT outsourcing can bring from external providers, enabling an organisation to concentrate on its core business, and cut costs. The popularity of offshore IT services delivery has changed the landscape for established IT services companies in the US and Europe. Transformational outsourcing is a relatively new moniker that has been adopted by a number of the large service providers, who believe that it will be one of the main battlegrounds in the IT services market over the coming years.

Most non-core services like IT and back-office business processes are commonly outsourced. Outsourcing is ubiquitous in the IT world. Pick up any IT newspaper and you will invariably find several reports about outsourcing initiatives. As organisations evolve and become more complex, it is only natural to contract out key IT services to those with specialist technical and professional skills. People and organizations have always looked to others to assist in tasks that they are either too busy to do or lack the necessary skills to perform competently. To some, the trend towards outsourcing reflects maturity in the IT world.

IT outsourcing can reduce the ICT expenditure incurred by the business. It has matured over the years from being something that a company might do to get rid of an IT nightmare, to something that can make its business more flexible, agile and cost efficient. Many companies feel that the complexity and cost of running their own IT systems are just too much, and are glad to hand it over to a company that specialises in doing that more efficiently.

Enterprises will look for partners who can assist them move quickly and give them a competitive edge over others. As the competition goes up, clients will need to develop specific strategies to choose the best service provider among a variety of others. Outsourcing has become an accepted phenomenon with every business wanting to partner with specialists in their tier. Being abreast of future developments is essential for clients who want to keep up with the changing environment and innovate their business.

WHAT DOES THE FUTURE HOLD FOR IT OUTSOURCING?

According to the GSA report, 70% of the companies surveyed are going to outsource more in the coming years, of which 35% of them plan a significant spend in the same. 84% of service providers expect the outsourcing industry to grow and 37% believe it will do so remarkably. In 2017, the global traditional outsourcing industry generated $88.9 billion in revenue. The total contract value of the information technology outsourcing (ITO) market amounted to $64.3 bn. Analysts at Technavio predict that this figure will grow to over $409 billion by 2022. Such growth prospects of the IT industry are promising for both clients and vendors. Yet, as growth goes up, so does business’ complexity.

CHALLENGES OF IT OUTSOURCING

Information Technology (IT) Outsourcing is becoming more and more popular today with intense competition among U.S. businesses. For example, consider a computer manufacturing company, they may find it less costly to employ workers in developing countries where wages are just a fraction of the cost in comparison to wages in the United States. Considering the significant difference in costs, it is imperative that companies outsource. In order to have a chance to survive and sustain in today’s competitive marketplace,
outsourcing is essential.

Outsourcing has helped US-based companies to be more competitive in the global marketplace and gained popularity within corporations due to the wage arbitrage. However, the downside is that numerous jobs are being eliminated and job security seems to no longer exist for many.. Outsourcing has therefore recently become a major issue in our society and a reason for political debate due to the impact it can have in certain economies where jobs are being taken away by local citizens and residents to offshore locations.

Global IT Skills Shortage

The lack of in-house engineering talent is one of the chief drivers of the IT outsourcing industry. Organisations will opt to outsource their services to more enticing destinations in Central & Eastern Europe because of the shortage of technical professionals in their own countries.

According to the “Talent Shortage survey 2015”, over 70% of technology employers in the UK expected to face a talent shortage over the 12 months. It was estimated that 600,000 vacancies in digital technology cost the country £63 billion a year.

IT talent shortage is also a growing problem in the USA. The report by Gartner, a global research firm, predicts that by 2020 there will be 1.4 million computer specialist job openings. This will, in turn, create a talent shortage that universities won’t be able to fill by even 30%.

Automation and artificial intelligence, in general, will speed up the shift in required workforce skills. McKinsey, a management consulting firm report predicts that the strongest growth in demand will be for basic digital skills and advanced technical skills such as programming.

One Information Systems

Management Issue in OUTSOURCING

The potential downsides to outsourcing include:

  • Loss of control over a vital business service.
  • Lack of flexibility within the services received.
  • Damage to employees morale/culture clashes (between the service provider and customer).
  • Distraction of having to manage the link with the service provider.

The number of companies choosing to outsource continues to grow rapidly. For many, it seems that the potential benefits outweigh the downsides. However the benefits of outsourcing will only be realised if the customer is well prepared, the outsourcing contract contains sufficient detail and the on-going relationship is managed effectively – it is an old percept that one should never outsource a problem, but unfortunately, this occurs frequently.

Case Study / Discussion and Argument

Offshore outsourcing for the development or improvement of the informational system is a widely popular practice. But in most cases, it’s about engaging the contractor based on “fixed price” model or “actual work”. But the forms of cooperation dedicated to offshore development are often missed by IT managers. Within the limits of creating a centre like this, the outsourcer teams up with the IT crew based on the business’s needs and specifications. And this team is concentrated on executing the projects of that customer. Using a dedicated development team is much more useful and financially attractive than using other outsourcing schemes because of the rising effectiveness of those investments in the longer term.

When is an offshore development centre needed? Crossing the line between the need of the organization for a dedicated offshore development centre and choosing another model of IT outsourcing is simple. If one company needs the realization of a one-time and small project, its IT landscape is clear, and the influence level of IT to the business is insignificant. So, the traditional outsourcing schemes are a better choice in this case. Another option is where several systems of development are used within the company, but the technical knowledge and its workflow are lost. The business-critical dependence is on reliability and quality of IT solutions: the lack of operative involvement becomes a critical break for the development. So, recruiting the external specialists’ team on a long-term basis is the best choice.

With close and ongoing collaboration between customer and provider within a dedicated offshore development centre, the optimization of the IT and business processes can be managed end to end – this minimizes the number of errors and lowers the amount of force “re-doing”. The advantage of using the dedicated centre is a factor of a total workflow. It guarantees the absence of miscommunication and unpredictability, which may appear in a company, looking for a new provider every time.

Despite such attractive features of offshore outsourcing, there still are opponents, arguing that using a business model like this, takes jobs away from the people inside the country where the company belongs. However, hundreds of major corporations are shipping numerous jobs overseas with offshore outsourcing.

CASE STUDY 1

Premier Financial

Bancorp, Inc. unifies ticketing, purchase management, and their self-service portal using their outsourced provider, Service Desk Plus.

Synopsis

With increasing support calls as well as decentralized IT contract and purchase management, multi-bank holding company Premier Financial Bancorp, Inc. was looking for a help desk solution that would streamline their ticketing process and provide better visibility into their IT contracts and purchases.

Challenge

Premier Financial Bancorp, Inc.’s help desk operations are managed by a six-member team based in Huntington, West Virginia. With multiple offices across the East Coast, users would primarily call the help desk when they needed assistance. This meant technicians spent more time answering calls than resolving tickets. Without a proper database that detailed problems and their related solutions, technicians were also spending a lot of time looking for answers to known solutions.

Consequentially, technician productivity took a big hit. With operations across 45 cities in two different states, Premier Financial Bancorp, Inc.’s IT purchase orders and contracts were all over the place and became unmanageable. The company needed a help desk solution that would accommodate users with faster ticket logging, assist technicians in resolving tickets quicker, and provide more visibility into the company’s purchases and contracts.

Solution

Premier Financial Bancorp, Inc. selected an outsourced provider – ServiceDesk Plus, who provided an easy solution to the on-going IT service problems. Their customers now log tickets using a self-service portal, which means the help desk gets fewer calls and the technicians are able to focus on more productive tasks. Using the self-service portal, users are also able to check the status of their tickets, provide information to technicians whenever required, and get notifications about company-wide announcements.

This robust ticketing system helps technicians track requests in real time, communicate with customers from within the tool, create templates for common requests, and view the history of a request. An integrated knowledge base enables technicians to create solutions right from within tickets and access previously solved problems and known errors, thus eliminating the duplication of efforts.

The Purchase and Contracts modules enable the team to keep track of all purchases and contracts across the organization’s different locations. With centralized IT purchase management, Premier Financial Bancorp, Inc. is now able to make better purchase decisions and allocate costs more efficiently since they can quickly identify where cost centres are and pull a report of their purchase history. Apart from addressing the organization’s immediate needs, ServiceDesk Plus also provides them with seamless integration between the Requests and Purchase modules. The help desk team can see the complete life cycle of a purchase order, from the associated request to the closure of the purchase order, up until the ticket is closed. Premier Financial Bancorp, Inc. found the solution that was right for all of their ticketings and purchase visibility needs.

CASE STUDY 2

IKEA

In 2013, IKEA started a joint offshore outsourcing project with Wincor Nixdorf for setting the IT solutions for money settlement units across their network. Throughout 2014-2015, Wincor Nixdorf set twelve thousand POS-systems in three hundred IKEA stores in twenty-five countries. A 6-year deal between them includes the installation and management of POS-systems. Having a single software provider offshore, IKEA not only lowered the work to run the stores, but it also had a significant cost reduction in implementation and management.

Conclusion

From the above-detailed discussion, it is understood that in conclusion, “Outsourcing is a vital part of most businesses today”. There are various factors that play an important part in the decision to outsource, such as quality, cost and other factors.

The reasons for outsourcing IT are varied but some of the most frequently cited drivers include:

  • Reducing IT costs through efficiencies and economies of scale on the part of the service provider
  • Access to world-class IT skills, experience and resources
  • Removing non-core businesses
  • Minimising sizeable capital expenditure on IT infrastructure
  • Certainty of future IT spend

Critical Reflection – Analyse a decision to outsource ICT projects

Outsourcing has been a trending technique that allows stakeholders’ to invest money in a smarter way on businesses. The outsourcing trend grows both in number and it’s outsourcing value. The rate of success and disaster failure is rarely under the same press. The mistakes that contribute to disaster failure can be mended. Most of the aborted outsourcing is found in the field of commercial transaction. The risk of failure can be vanquished by early investment efforts and a good relationship between management when implemented. For example:

  • In order to support the decision of outsourcing, one should have a robust business strategy with the senior executives backing it.
  • From a technical point of view, existing IT operation should be informed about and has to know the type of IT service to be sought. Commercially, knowledge on existing IT footprint and its cost base should enable you to evaluate the benefits of outsourcing.
  • Examine what kind of organisation is required to meet the objectives. Should it be a single provider or multiple providers for specialist service? Are multiple providers to form a joint venture or consortium required?
  • Conduct of due diligence on third-party contracts and licences to ensure that third-party software and hardware licences are permitted by service
    providers (either by way of consent or through assignment or novation of contract) – fail to do so might lead to potential violation of the
    contractor licence and additional charges can be laid on third-party vendor.
  • Provide for the future – customers have an interest in ensuring that at the end of outsourcing, the services can be transferred seamlessly back to you or to another service provider. Prepare and agree on pre-contract stage and during contract negotiation on an orderly transfer procedure – this will give you the assurance that you are not locked into one supplier and that termination is a practical option.
  • Legally, one has to be prepared to negotiate the finer details of the outsourcing transaction so that the terms can be documented in the services agreement.

Reference List

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