Page 65 - DCAP307_PLANNING_AND_MANAGING_IT_INFRASTRUCTURE

Unit 4: Business Process and IT Outsourcing

has become a frequent management strategy to achieve lower costs, improve organisational Notes
focus, and upgrade capability. Many outsourcing contracts are multiyear, multimillion-dollar
deals that require approval by an organisation’s board of directors. Unfortunately, many problems
are associated with outsourcing, including quality problems, legal issues, negative impact on
customer relationships, and data and security leaks. The potential for problems is so great that
only about half of all outsourcing efforts are considered successful. Thus, the stakes are extremely
high and the potential for a major business setback is great. The probability of having a successful
outsourcing project can be increased greatly if the business managers who lead the effort are
forewarned about potential problems. These managers must be able to choose projects and
activities that are appropriate for outsourcing and avoid those that are not. They also must
follow an effective outsourcing process to minimise risks and ensure success.

4.1 Outsourcing

Outsourcing is an arrangement in which one company contracts with another organisation to
provide services that could be provided by company employees. It is a process where an
organisation subcontracts certain functions or processes within a business to a specialist, third-
party company.
These activities are something that we often do in our daily lives.

Example: Many people have gardeners or cleaners simply because they do not have the
time or inclination to clean their house or mow the lawn. In fact from a business perspective we
will rarely see a member of staff cleaning the office at the end of the day, it is nearly always
contracted out to a specialist company.
IT outsourcing can be used by most companies and, in fact, many outsource some key IT services
without actually realising it.

Example: Many companies outsource their IT support function such as software support
and hardware maintenance. It is very rare, especially for small to medium size companies, to
retain these support services in-house simply because employing specialist personnel who may
only ever be called upon occasionally, is not cost effective. This means that the company has the
expertise of a professional but not the overhead or cost of a full-time person.
IT outsourcing is also sometimes known as ‘managed services’. This is a very similar system
where generally, non-strategic IT functions are subcontracted to a specialist third party
organisation.
The outsourcing provider may not necessarily provide all of the services required directly as
they may not have the relevant resources or expertise. Quite often certain services are sub-
contracted to specialist companies, leaving the original provider to manage those relationships.
There are very few vendors who have a reseller channel that focuses on Outsourced IT solutions
although one of the most notable is The Risk Group whose channel provides Backup, Exchange
and IT Support services. Organisations like Zensar, an Indian offshore company provide very
cost effective services but it’s the local reseller community, those ‘trusted advisors’
like Ramsac and Riven Associates that provide the peace of mind service that end customers
require.
Today outsourcing takes many forms and is by no means limited to information technology
outsourcing (ITO). Nor is outsourcing used only by large corporations; small and medium-sized
organisations have turned to outsourcing to meet their needs. Many organisations contract with

LOVELY PROFESSIONAL UNIVERSITY 59