IT MANAGING OUTSOURCING RELATIONSHIPS

IT Managing Outsourcing Relationships

IT managing Outsourcing Relationships

Introduction

As information technology (IT) outsourcing has become more pervasive, the need to manage IT outsourcing relationships on a long-term basis has become more important. A survey by Input shows that many clients consider switching vendors due to various causes such as lack of satisfaction with the performance of the vendor, conflicts based on typical agency problems, or newly emerging conditions and needs.

However, switching vendors, especially during the course of contract execution, involves a lot of transition costs including early termination costs, switching costs, redeployment costs, relocation costs, etc. Further, in such a situation, a client company will also have to search for another appropriate service provider or take the outsourced information systems (IS) activities back in-house. It may, therefore, be more beneficial for companies to nurture and maintain long-term high-quality relationships with their current vendors through persistent contract renewal.

Information systems outsourcing, or the contracting out of IS procedures to more specialized firms, is a business strategy which many organizations in a variety of industries see as a beneficial one. Before a company decides to make the leap into an outsourcing relationship however, it should determine what it considers its core competencies and which of these competencies would be most profitable to outsource. As with all business strategies, IS outsourcing has numerous benefits and pitfalls. If the relationship between the organization and the outsourcing vendor is well maintained, it is possible for any outsourcing venture to be successful.

The key, however, is not simply to enter into an outsourcing contract because of limited cash flow, which is tempting to most organizations. In order to truly be successful, a company should enter an outsourcing agreement with a strategic plan for what it wants to achieve. Organizations are continuously aiming at attaining, as well as maintaining, a competitive advantage in an industry. By outsourcing and with a certain set of guidelines, it can be proven that it is possible to gain competitive advantage through outsourcing.

Body

Outsourcing is the contracting out of tasks and services usually performed in-house, to an external vendor. Jennings (2006) offers this definition of information systems (IS) outsourcing - "IS outsourcing is the transfer of part or all of an organization's information system, data processing, hardware, software, communication network and systems personnel to an external party." Jlee (2001) agrees that it is "the market procurement of formerly in-house produced goods and services from legally independent supplier firms". These supplier firms can be one of the following - technology vendors, contractors, consulting firms or systems integrators (Jlee, 2001)). Typical in the 1970s were diversified conglomerates. This has changed considerably over the past decade, with companies moving towards outsourcing. Loh (2002) explain that outsourcing is not a new concept, but is related to the concept of time sharing service bureaus of the 1960s and 1970s.

Outsourcing can be used by almost all industries including financial industries, electronic industries and telecommunications industries. Financial industries tend to outsource frequently because information technology ...