Systems Development
The Case for Rejecting Outsourcing the IT Department
The data and information within an organization is its life blood, it was what makes one company differentiated from another and valuable to customers. With IT being at the center of the information engine of any business, the idea of outsourcing it, allowing a third party company to manage this vital aspect of the company’s health is like allowing a podiatrist to do heart surgery. It’s not going to end well for either the doctor or the patient. The costs and benefits of IT outsourcing are presented in this analysis. Granted, IT outsourcing of menial, low-end tasks shows potential for streaming the operations of a business, allowing it to concentrate on its core business more effectively (Goo, Huang, Hart, 2008). Conversely outsourcing all aspects of IT can lead to a company abdicating its leadership in its main markets by sacrificing its core intellectual property (IP) (Goo, Huang, Hart, 2008)
Analysis of Costs and Benefits of IT
The most common misconception of outsourcing IT is the belief it will lower costs. From the many empirical studies of outsourcing, cost reduction is often the secondary benefit (Jae-Nam, Miranda, Yong-Mi, 2004) and often does not materialize at all given the massive amount of coordination and knowledge transfer that has to happen for any outsourcing relationship to be successful (Goo, Huang, Hart, 2008). The cost savings of outsourcing are a mirage; they exist only on one side of the equation of for the company hiring outsource providers. The other side of the equation is the massive amount of effort it takes for any outsourcing relationship to work correctly. There are literally hundreds or even thousands of hours waiting to be spent by senior management, all other departments and worst of all, the customers who are often not given the necessary information they need.
Outsourcing disrupts the quality management of a firm in addition to its value chain. The information flows of a business, so critical to quality management, its value chain, and the attainment of high levels of customer satisfaction, are all disrupted when the IT systems are disrupted. As the IT systems go within a business, so goes its entire unique value delivered (Goo, Huang, Hart, 2008). Don’t be fooled by the hype of outsourcing and its apparent, not actual benefits. As Figure 1 shows there is an abundance of hype with regard to the real value of outsourcing. The most effective uses of outsourcing are for websites and hosting, not broad IT systems and department.
Figure 1, for Outsourcing
(Cardella, 2011).
Conclusion
The hard reality is that data is the new oil, the most precious of resources secondary only to the employees of a firm. To outsource the IT systems of a business is to gamble with its viability and resiliency to compete over the long-term.
References
Cardella, T. (2003). Executive roundtable. Customer [email protected] Solutions, 22(3), 16-17.
Goo, J., Huang, C.D., & Hart, P. (2008). A path to successful IT outsourcing: Interaction between and commitment. Decision Sciences, 39(3), 469.
Jae-Nam, L., Miranda, S.M., & Yong-Mi, K. (2004). IT outsourcing strategies: Universalistic, contingency, and configurational explanations of success. Information Systems Research, 15(2), 110-131.
