by
Francois Nadeau
Francois Nadeau
- Abstract:
This report describes some of the methods used to integrate outsourced Information Technology (IT) resources within an Information System (IS). The report concludes that as the outsourcing of IT resources shall continue to occur in the future, IS professionals need to be able to understand the mechanisms and effects of outsourcing IT resources.
| Table of Content |
| Chapter 1: Introduction |
| Chapter 2: Background |
| Chapter 3: Discussion |
| Chapter 4: Conclusion |
| Chpater 5: Recommendations |
| Bibliography |
Introduction: Integrating Outsourced Information Technology Resources
Outsourcing is a business decision in which some of the work required to be performed by a company is given to a third-party organisation[1]. The primary motivation for a company to outsource some of its work is to decrease its operational cost, as lower cost creates a competitive advantage[2,3].
A company's Information Technology (IT) resources, both outsourced and internally staffed, need to be integrated into the Information System (IS) to maximize the company's return on investment[4]. This is because resources which have not been integrated will not add to a company's product value, and hence will not be able to increase sale revenues. It is important to note the difference between a company's product value and a company's value. The former refers to the perceived value of a product by its purchasers. The latter refers to the "book value" or actual value of a company[5]. That is, although a product which is not available to a company's clients (i.e., a non-integrated resource) has value to the company, it does not have any value for the clients.
This report describes some of the methods which are used to integrate outsourced IT resources into an information system. Its purpose is to better understand what is required for an organisation to successfully integrate outsourced resources.
Background: Outsourcing and information system integration
A company's IS functions can be outsourced in two different ways. The first method is to subcontract a third-party company to be responsible for a specific business section of its operations[6]. For example this method has been used to outsource IT help desk functionalities and software development[7]. The second method requires the company to remain responsible for the section and contract a third-party company to provide the workers who will perform the work[6]. This method can be compared to the staffing industry, in which a worker's salary is not paid by the company which utilizes his skills but by the staffing agency.
Before choosing an outsourcing method, the individuals responsible for the IS need to evaluate the advantages and disadvantages of outsourcing. Although the advantages of outsourcing are often identified uniquely as financial ones[2], the disadvantages of outsourcing can affect a company's long-term financial prospect[8].
Regardless of the method pursued by a company which has decided to outsource some of its resources, the IS integration of outsourced IT resources can be a complex and difficult task. In the past, companies which have attempted to complete this task have had both successes and failures which have elevated or hurt them. Because of this, understanding how to integrate outsourced IT resources into an IS has become an important skill for IS professionals[9].
Discussion, analysis: Successful outsourcing practices
Outsourcing successes have occurred in companies which took an active role in the project before, during and after its implementation.
III.A. Before outsourcing : Companies need to do some planning
Before deciding to outsource an IT resource, a company needs to carefully research the effects of such a decision. Although the problems regarding outsourcing only surface once the outsourced project has begun, solving these problems before they occur is often more profitable than waiting for them to occur[10]. The following are some points to be taken into account before deciding to outsource:
A.Internal issues
A.1. Level of support and understanding for the outsourcing decision by the internal staff[10]
A.2. The ability of the internal project managers[10]
A.3. Long term business goals[10]
B.Quality issues
B.1. Culture issues between the company and the outsourcing agent[10]
B.2. Contractual considerations[12]
III.A.1. Internal issues
A company's internal staff can successfully derail a project which would otherwise have been successful if they feel the need to do so[10]. This unwanted side-effect has been explained as a response to a perceived threat to the employees' employment security[8]. Because of this, decision makers who are considering the outsourcing of some resources should evaluate the impact that this decision would have on their staff[10]. Furthermore, the internal staff should be made to understand the business rationale for outsourcing[13].
Overseeing an outsourced project takes skilled and dedicated managers[11]. A realistic evaluation of the key management individuals who shall be involved in the project must be completed before deciding to outsource. Should the result of the evaluation be negative, proper steps should be taken by the company to find and retain skilled managers for the duration of the outsourced project[11].
A company's long-term business goals could also be considered before making an outsourcing decision. This problem encapsulates a great number of issues which will be different for all companies. For example, outsourcing can be used to build economic relationships with the country in which the outsourcing company is located[12].
III.A.2 Quality issues
For the past few years, many companies have followed a trend of outsourcing to companies located in other countries than their own[1]. Unexpected side-effects due to cultural difference such as one company's open willingness to experiment and an outsourcing company's unwillingness to stray from guidelines have occurred[11]. Due to the non-technical nature of such problems, forecasting and resolving these issues can be costly[10].
There exist various contractual solutions to safeguard the quality of the work performed by the outsourcing company. These include testing a potential company with smaller projects before starting on a bigger task[11], requiring that the outsourced company conforms to established standards and methodologies[10], relocating an internal staff member to the outsourcing company[8], establishing penalties for not meeting deadlines[12], creating a detailed specification document for the work to be completed[12], and allowing the contract to be adjustable so that changing business needs can be meet[15].
III.B During outsourcing : Companies need to be actively working with the outsourcing agent
Effective communication between the company and the outsourcing staff must be maintained during the outsourcing activity[10]. Many companies, such as Cendant, have had negative outsourcing experiences due to communication failures[15]. To avoid such problems, a communication method needs to be established[15]. This communication method should include a mechanism for resolving conflicts[12]. Furthermore, the project manager must make sure that all communications are well-documented, easily accessible[10], and based on facts, not employees' emotions[15].
Outsourcing companies have gained a reputation for having a high staff turnover, which may affect a company's project[10]. To minimize the risk created by such events, project managers should take steps to assure that key personnel in the outsourcing company will be involved for the duration of the project[12].
III.C After outsourcing : Companies must think about security and possible competition
Once an outsourced project has been completed, the outsourced team which completed the work will not necessarily share the company's business needs. For example, subsequent projects cannot assume the outsourcing team will be building on the knowledge that was acquired during the previous project, since the outsourcing company may provide a team with different members for future projects[16]. Competitive advantage is an other concern, since the business knowledge which was acquired during the project could be harnessed by the outsourcing company to directly compete against the company or to be sold to the company's competitors[17].
Some side-effects of outsourcing are difficult to predict. For instance, there has been a case of an employee committing suicide after being replaced by an outsourced employee[13]. Although the method for calculating business success does not have any penalties for such events, backlash from the public or government can occur[19]. These inconveniences may have negative effects on a company's public image and may in turn affect the company's profits[14].
III.D Further Research Areas
Although a lot of research has documented the short-term benefits of outsourcing IT resources, few have documented the long-term effects of outsourcing. This may be caused by the complexity of such research, and by the relative infancy of IT resource outsourcing. However, the question of whether or not a company which has outsourced its IT resources can enjoy greater long-term benefits then a company that has not outsourced, is still to be answered.
The psychological strain on the world's population due to employment uncertainty caused by outsourcing needs further research. Without proper studies in this area, both government officials and business leaders' will be incapable of predicting the work force's behaviour. This will deprive our social leaders from proper information required to make decisions.
Conclusions
The outsourcing of IT resources can be an effective method for a company to gain a competitive advantage. However, to be successful, a company must have individuals who understand and know how to cope with the challenges involved. Furthermore, if a company wants to maximize its return on investment, the managers responsible for outsourced IT resources must continually work with the outsourcing company. Outsourcing is best viewed as a relationship between two companies, where both companies involved need to reinforce the trust between each other in order to be successful.
The outsourcing process has many pit-falls which need to be avoided. Fortunately, due to the amount of IT outsourcing which has occurred until now, individuals wanting to learn about outsourcing have an abundance of projects to learn from.
Recommendations
Blindly directing the outsourcing of IT resources can increase, instead of decreasing, a company's operational cost. Therefore, it is important that companies which are considering the outsourcing of IT resources carefully evaluate their needs.
It is expected that the current trend of outsourcing IT resources will continue to grow in the future. This growth is expected to occur due to enhancements in communication and transportation. For this reason, professionals who are responsible for the IT resources need to be made aware of successful outsourcing methods.
Bibliography
[1] Wikipedia, [Online document], Available at HTTP: http://en.wikipedia.org/wiki/Outsourcing
[2] Dictionary.com, [Online document], Available at HTTP: http://dictionary.reference.com/search?q=Outsourcing
[3] R. Stair and G. Reynolds, Principles of Information Systems, 6th ed., Boston: Thomson Course Technology, 2003, pp. 57-61.
[4] T.Ohno, Toyota Productions System: Beyond Large-Scale Production, Productivity Inc, 1988, pp. 48
[5] T.Ohno, Toyota Productions System: Beyond Large-Scale Production, Productivity Inc, 1988, pp. 48
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[10] S.Lemon, "Outsourcing requires careful planning", [July 2005], [Online document], Available at HTTP: http://www.networkworld.com/news/2004/0628towina.html
[11] M.Ferranti, "To win at offshoring: Start slow, be deliberate", [June 2004], [Online document], Available at HTTP: http://www.networkworld.com/news/2004/0628towina.html
[12] R.Petershack, "Consider the legal issues before outsourcing offshore", [July 2005], [Online document], Available at HTTP: http://wistechnology.com/article.php?id=2007
[13] S.Overby "The Inner Cost of Outsourcing", [November 2004], [Online document], Available at HTTP: http://www.cio.com/archive/110104/interview.html
[14] J.Rifkin, The End Of Work, Jeremy P. Tarcher/Penguin, 2004, pp. 190-194.
[15] C.Mathews, "How to Improve Outsourcer Relationships", [July 2005], [Online document], Available at HTTP: http://www.cio.com/archive/070105/forum.html
[16] S.Overby, "Sticking with the Home Team", [July 2004], [Online document], Available at HTTP: http://www.cio.com/archive/071504/tl_outsourcing.html
[17] E.Anderson, JR, and M.Annanderson, "Are your decisions today creating your future competitors?", [Online document], Available at HTTP: http://www.coolingzone.com/Guest/News/NL_DEC_2000/Pegasus/pegasus.html
[18] S.Overby "The Inner Cost of Outsourcing", [November 2004], [Online document], Available at HTTP: http://www.cio.com/archive/110104/interview.html
[19] "Sidebar: Backlash Triggers", [July 2004], [Online document], Available at HTTP: http://www.computerworld.com/managementtopics/outsourcing/story/0,10801,94403,00.html
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