Information Technology Outsourcing

Essay by JadenCollege, UndergraduateA+, January 1996

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'Information Technology outsourcing is the contracting out of part or all of an organization's IT activities.' New trends have included operations, programming, and technology planning. The main reason for information technology outsourcing is to gain immediate economic gains for the company, usually through savings. Financial motivations aren't first on businesses minds though; other strategic objectives are.

Outsourcing can make it easier to downsize. Because you are bringing in outside help, and can cut back on fixed salaries, the company becomes more variable. Outsourcing leads to tighter linking of strategy and IT. Knowledge which usually flows slowly can flow freely, and a company has more access to outside technology. Plus businesses receive information faster than other types of hierarchical communication, and the resources are endless. Outsourcing can unlock organizational structures. 'The unlocked IT organization can provide a better mechanism for costing user requests, prioritizing technology initiatives and controlling expenditures.' It offers the benefits of both systems involved.

Another important goal that IT outsourcing takes on, is reducing technological risk. By outsourcing your needs you know that that the employee know what they are doing.

Some of the problems IT outsourcing may encounter are, loss of strategic control, risk of technological obsolescence, limiting of long-term flexibility, difficulty in benchmarking initial contract, hostage to additional charges, high exit or switching costs, limited choice of vendors, the fixed nature of legal contracts, legal exposure, from dissatisfied former employees, and cultural conflicts.

The people doing the outsourcing for the companies are sometimes the life's-blood of that company. If the outsourcers want more money, then they are almost obligated to give that money. This is usually the case when the contractors are bringing new technology into the system.

High exit or switching costs entail the switch-over costs the company must shoulder if they decide to end...