Outsourcing of Information Technology

Outsourcing of Information Technology

Introduction3

Baseline Position5

Technology6

Boundaries7

Membership7

The Emergence of the Virtual Organization8

Characteristics of Virtual Organizations8

Shared Goals10

Mutual Benefit10

IT Outsourcing11

Determinants of IT Outsourcing13

Outsourcing Relationships16

Outsourcing Risk18

Assessing Outsourcing21

IT Outsourcing Outcomes23

Recommendations for IT Outsourcing Practice24

References26

Outsourcing of Information Technology

Introduction

The outsourcing of Information technology (IT) or Information Systems (IS) functions has become a prevalent business practice for both large and small organizations in the United Arab Emirates. Dibbern, Goles, Hirschheim, and Jayatilaka (2004) define outsourcing as the process whereby activities that are performed within the organization are moved into the market to be performed by an external vendor. As they point out, most organizations engage in outsourcing to take advantage of cost savings or acquire access to a broader range of IT skills. The opportunity to realize lower IT costs is seen by many organizations as a competitive imperative. The recent trend towards globalization brought on by advances in information and communications technologies, and political leaning towards open markets has resulted in both increased competition and new opportunities in the global marketplace.

Many organizations working inside UAE view their IT costs to be a cost of doing business rather than a source of competitive advantage. These organizations look to outsourcing as a means to leverage the opportunities made available through globalization to achieve IT cost savings. Such organizations follow the reasoning of Nicholas Carr (2003) who proclaims that IT is no longer a source of competitive advantage and organizations should seek to minimize their IT investments and lower their IT costs. Carr's assertions were met with much criticism as many scholars point out that Carr's analogy comparing the competitive value of IT to the steam locomotive is fundamentally flawed. These scholars reason that the value of IT is not derived from the technology itself but in its ability to augment and support core business processes that are the source of an organization's competitive advantage (Carr, 2003; Brown & Hagel, 2003; Varian, 2003).

The value of IT is its ability to be applied to solve business problems, or enable business opportunities. The careful application of technology to support the strategy of an organization is what creates business value and indeed competitive advantage from IT investments. In this context, the application of IT becomes domain specific and relevant only within the context of the organization to which it is applied. IT becomes to the organization a resource, much like any other resource, that when leveraged in support of the organization's strategy creates value and, potentially, competitive advantage. A seminal theorist on organization strategy, Michael Porter (1996), argues that an organization's strategy defines and is defined by the unique activities that the organization performs that are difficult to imitate, uniquely leverage the core competencies of the organization, and are based upon valuable but scarce resources. These conditions, according to Porter, create a niche for the organization within the market and this niche is the organization's source of competitive position and advantage.

From Porter's view of strategy, IT creates advantage by supporting the ability of the organization to create and ...