The activities of outsourcing are not new for the businesses. The difference is only that the name ‘outsourcing’ was not given in back 20 years but now it has properly given its name and implementing by almost all the businesses worldwide. The practice of outsourcing is going on from last 20 years in the business environment. And now it is very well shaped. The base of the research paper is to flourish the challenges and negative side of the outsourcing which are facing by every business of the US economy in the department of Information Technology.
Outsourcing refers to the assistance that the companies take from the other companies. This assistance in terms of IT can be installing of software, managing the database etc. In the field of IT, it requires high performance, maintenance, and should be updated with the coming technologies. With the emerging trend of IT, the competition between the companies arises. So to cope up with this situation most of the companies are catering towards outsourcing. “The performance demands of the e-economy, and pressure to deliver competitive IT functionality. To meet these challenges, organizations are increasingly considering outsourcing of their information systems activities as an attractive option.” (Canadian Institute of Chartered Accountants)
The IT companies hire the people from outside sources on contract basis to perform the IT functions. “Allotting work to suppliers and distributors to provide needed services and materials and to perform those processes that the organization does not perform itself.” (Hormozi 2003). Instead of performing the IT function itself the companies hires professionals. Those professionals are the service providers related to another entity. The companies tries to adopt outsourcing because it saves time and cost. “Rather than devoting time, energy and capital to the creation of IT processing services, organizations feel they can minimize the start-up time required to enter new markets by contracting a third party to provide those services immediately.” (Canadian Institute of Chartered Accountants)
Challenges to IT Outsourcing
Outsourcing has created many challenges to the businesses. There are also some drawbacks. “A study of 85 outsourcing deals over the period 1992 – 2000 showed that, while in 60% of these deals the client benefited, nearly 36% of clients experienced problems.” (Canadian Institute of Chartered Accountants) Following are the problems which are facing by the organizations while IT outsourcing.
A company can be strong when all of its information should be in its own hand and operating by the company itself. If there would be lack of data integrity, the system can be fail easily or the information of the inside company can be access by the others, then the company can bear the losses. Every company have there own secrets inside the company if they will be whistle blow by any one then the reputation of the company can be effected or lawsuits. “In an outsourcing arrangement, an organization’s processing is performed by different personnel, with different management, using different techniques and methods, in a changed operating environment.” (Canadian Institute of Chartered Accountants) Another problem which occurs during outsourcing is that the companies are not acknowledge with operational problem and are not able to know the ruthlessness of the problem.
Companies can loss its competencies by outsourcing. The service provider can easily access the information or data but this can be compensated by the working of effective functions of IT. “An organization therefore risks losing its competencies or its otherwise deep knowledge of its systems and operations in relevant domains. This loss could, in turn, compromise its ability to operate and manage effectively.” (Canadian Institute of Chartered Accountants) The outsourcing team should be effective. There is lack of competencies, so the companies don’t have direct control over them. To create the direct control the companies should hire effective team that can effectively and efficiently solve the IT problems. “Lack of these competencies may compromise its ability to make decisions on changes to the IT services, manage the governance relationship or liaise with the customer base inside the organization.” (Canadian Institute of Chartered Accountants)
Mostly, the problem faced by the companies is the difference in the work which the company wanted and the service which service providers supplied. Always there is different between these two pints. Both the parties take time to get to know each others point of view. “The organization may be accustomed to a certain standard and style of performance that was provided by its internal IT department prior to outsourcing. This same standard and style may not, however, be continued by the service provider.” (Canadian Institute of Chartered Accountants)
“Research shows that lack of clarity and understanding of the costs related to the many aspects of outsourcing service delivery are the biggest problems of outsourcing.” (Canadian Institute of Chartered Accountants) When a company does not properly plan outsources then the unusual cost could incur after sometime that can effect the efficiency of the outsource program.
Amir Hormozi, Erin Hostetler, Cynthia Middleton; Outsourcing Information Technology: Assessing Your Options SAM Advanced Management Journal, Vol. 68, 2003 Accessed on November 7, 2006
itmWEB: Outsourcing Information Technology
http://www.itmweb.com/essay528.htm Accessed on November 7, 2006
Eric Krapf; Outsourcing: Doing It More, Liking It less Business Communications Review, Vol. 29, November 1999 Accessed on November 7, 2006
The Canadian Institute of Chartered Accountants, Information Technology Advisory Committee. Information Technology Outsourcing, Insights for a changing world. Copyright ©2003 the Canadian Institute of Chartered Accountants, 277 Wellington Street West,