Information Technology Outsourcing: Benefits, Challenges, and Opportunities

Information technology has highly advanced in the last decade and many individuals and companies have taken the initiative to use the available advancements to achieve their dreams. For instance, Information System outsourcing has provided the basis for generating revenue and profits for businesses. Technology has its advantages as well as disadvantages whereby many people have the opportunity to expand their knowledge and business, however, they do not have time for their families and friends.

1
Information Technology Outsourcing
Student’s Name
Institution
Information Technology Outsourcing

2
Abstract
Information systems (IS) are
used for the collection, storage,
organization as well as communication
of data or information. An information
system uses various components that
interact with each other to produce
certain information, it focuses more on
the internal components instead of the
exterior. IS combines software,
hardware, data, functions and business
processes to increase the efficiency and
management of a company. In essence,
the more advanced a company’s
information system is, the more
accurate and efficient the company is.
Modern Technology refers to the
advancement of old and out-dated
technology. People use technology in
various ways, however, how we
implement a certain technology may
have harmful outcomes to the user and,
eventually, their functioning in society.
Technological changes and the
development of various information
technology tools have significant
changes in organizations and businesses.
Over the past few decades, there has
been an increased growth of advanced
technology including the development of
Information Technology and Systems,
which have driven many modern
organizations to their level best and they
seek more improvement. Over the past
decade, Information system outsourcing
has become more of a common day to
day practice.
Information System outsourcing
is the process through which
organizations delegate a part of its tasks
to an external provider or vendor.
Information System outsourcing is an
essential and vital part of an
organization which helps in the
evolution of service delivery models and
a large number of companies are using
the system to capture new market
innovations. Some of the innovations
include cognitive technologies and
robotics which increase a company’s

3
capabilities and efficiency. Nonetheless,
companies should be able to adapt to
their sourcing cycle in order to capture
the actual value being created in the
marketplace. Companies can capture
new values and build innovative
advantages by creating and using
innovative frameworks to select,
contract, and govern vendor
relationships. According to Hirschheim
et al [1], outsourcing has been practiced
in major organizations across the world,
however, over the past few years, IS
outsourcing has rapidly increased
including multiple systems and essential
transfer of assets.
Min et al [2, pp. 409 - 410]
described information system
outsourcing as one of the means that
businesses are using in order to focus its
competency and fully utilize their
external sources and also expertise their
ability to handle supply chain activities.
Min et al [2, p. 410- 420]. conducted a
study to determine how IS outsourcing
influences the supply chain
management. Technology advancements
have given individuals and
organizations the opportunity to
change, improve and achieve. Business
organizations have fully utilized
technological means such as IS
outsourcing to improve the efficiency
hence improve their market boundaries.
Generally, IS outsourcing involves any
form of externalization of managerial
responsibilities associated with
delivering information and
communication technology services
usually performed in the company. IS
outsourcing benefits include improved
cash flow, cost savings, better and
improved asset management,
productivity gains, reduced burden in
capital investments, quicker and
efficient customer responses, access to
new and improved technology and
specialists and supply chain
consolidation [2, pp. 411]. The research
question investigated in the paper is

4
whether IS outsourcing significantly
influence a company’s supply chain
performance and the important
determinants of outsourcing success.
The researchers hypothesized that IS
outsourcing is highly influenced by the
size of the firm, the industry type and
supply chain awareness. The research
used questionnaires for data collection
in random US business firms. As a
result, IS are found to facilitate
information flow throughout the supply
chain and in most cases, it enhances
supply chain visibility. In essence, IS
outsourcing strategies can have a
profound effect on a company’s supply
chain performance [2].
Min used a nation-wide
questionnaire survey and it mainly
targeted the US firms. Balaji and Brown
[3, pp. 747- 760] conducted a study to
conceptualize several formal structural
and informal structural mechanisms
that may have a great impact on the
strategic IT benefits achieved by clients.
As a result, Balaji and Brown concluded
that the implementation of both
informal and structural mechanisms has
a positive impact on the client’s
strategic IT benefits. Also, the study
provided an empirical support that fully
supports the validity of using
information processing lens to theorize
lateral mechanism solution that may
provide challenges that experienced in
IS development outsourcing.
In some cases, the attempt to
apply Information System outsourcing
in a company and the management is
left with many unanswered questions.
Smuts et al shares some of the reasons
why the outsourcing including failure to
formulate an effective strategic vision
for the arrangement, insufficient
communication channels or the vision
arranged was not clearly understood [4,
pp. 111]. While conducting an
outsourcing project, there are various
unexpected dynamics that may arise
and may interfere with the client’s

5
boundaries. Reyez Gonzalez et al [5]
conducted a study to analyse the success
level of Information System
outsourcing. The study used
questionnaires to gather data and the
success level of outsourcing based on the
level of achieved by users. Information
Systems outsourcing has helped various
companies to reach their targets and
provides more opportunities for
employment.
IS outsourcing have brought
both opportunities and threats to
companies and clients using this kind of
arrangement. Smuts et al [4, pp. 110]
took the initiative to investigate and
understand threats and opportunities
associated with IS outsourcing. The
study used a comprehensive study to
identify different activities that are
related to opportunities and threats in
IS outsourcing from different
individuals and companies and also
identify ways that the issues can be
improved. The study used SLR, a
systematic literature review, to collect
data, evaluate and synthesize the
information. After the data was
analysed, the study identified a series of
threats and opportunities that arise in a
IS outsourcing arrangement. Some of
the threats identified include choosing
the wrong business to outsource with,
having unrealistic expectations,
unshared or ununderstood outsourcing
vision, outdated vendor technological
skills, choosing the wrong vendor and
lack of organizational learning [4,
pp.113-114]. Also, the study identified a
number of opportunities including
outsourcing vision scope that lead to a
successful business environment, helps
companies build their contract
negotiation skills which may be helpful
in other cases and it allows a company
to choose the best vendor to form an
outsourcing arrangement. This study
contributed by identifying and outlining
IS outsourcing opportunities and

6
threats that are likely to be experienced
in outsourcing arrangement [4].
Over the past decade, IS
outsourcing has become a major factor
in many organizations and the success
level of these arrangements is
determined based on the satisfaction
level of a user. Gonzalez et al conducted
a research to analyse the level of success
in the Information System outsourcing
sector [6, p. 1067- 1085]. The success
level of IS outsourcing is based on three
factors including the role played by the
client ’s firm management; the
relationship between the provider and
the client; and the level of outsourcing.
The study used questionnaires which
were answered by over 390 large
Spanish firms. The data collected was
analyzed using a partial least squares
software and also with the structural
equation model. As a result, the benefits
received play a major role in satisfying
the outsourcing arrangements and are
categorized into three groups including
strategic, technological and economical.
The validity of this research is shown in
its ability to show how success factors
defer depending on the type of benefits
that are expected as the end result of the
outsourcing arrangements.
According to Palvia [7]IS
outsourcing has gained much interest
from a number of American companies
including Kodak, National Car Rental,
General dynamics among others. Most
of the reports on IS outsourcing have
shown more benefit and success than
challenges making the endeavour
widespread.

7
References
[1] R. Hirschheim, A. Heinz & J.
Dibbern, Information Systems
Outsourcing: Toward Sustainable
Business Value. Springer, Berlin:
p. 1, 2014.
[2] H. Min, J. Seong and T. Nicholas,
“Information system outsourcing
and its impact on supply chain
performances”, International
Journal of Logistics Systems and
Management, Vol. 24, No. 4: p.
411; pp. 419-420, 2016.
[3] S. Balaji & C. V. Brown, Lateral
coordination mechanisms and the
moderating role of arrangement
characteristics in information
systems development outsourcing.
Information Systems Research,
Vol. 25, No. 4, 747-760, 2014.
https://pubsonline.informs.org/doi/
abs/10.1287/isre.2014.0556
[4] H. Smuts, K. Paula, A. Merwe,
and M. Loock, “Threats and
Opportunities for Information
Systems Outsourcing,” p. 110; p.
113-114; p. 118, 2015.
http://researchspace.csir.co.za/dsp
ace/handle/10204/8631
[5] R. Gonzalez, J.L. Gasco, and J.
Llopis, “Information systems
outsourcing satisfaction: some
explanatory factors. Industrial
Management. “ Data Systems, Vol.
115, No. 6, 1067-1085, 2015.
https://www.emeraldinsight.com/do
i/abs/10.1108/IMDS-01-2015-0030
[6] P.C Palvia, "A Dialectic View of
Information Systems Outsourcing:
Pros and Cons." Information &
Management, Vol 29, 1995, pp.
265-275.

8
Video presentation document
Information technology has highly advanced in the last decade and many individuals
and companies have taken the initiative to use the available advancements to achieve their
dreams. For instance, Information System outsourcing has provided the basis for generating
revenue and profits for businesses. Technology has its advantages as well as disadvantages
whereby many people have the opportunity to expand their knowledge and business,
however, they do not have time for their families and friends. Opportunities and threats
identified in Information System outsourcing can be used to help companies evaluate their
options and determine whether they can use outsourcing and who to outsource with. Many
scholars and researchers have researched the importance of Information System outsourcing,
however, there is a need for future research to fully understand how it can benefit companies
at all times.
Min et al [2] conclude that cost reduction and cost control is one of the major benefits
of IS outsourcing. The cost of running the functions involved in Information System
processing is very high and they can dramatically rise with time. This makes reducing the
cost is the main reason for information outsourcing. Employing specialists could be
expensive since it might not be possible to keep them busy at all times [2]. It becomes
economical to buy the services when needed since the service vendors are able to benefit
from economies of scale together with the ability to provide a variety of their staff, hardware,
and software which reduce the cost on equipment. They provide the same services to a
number of companies making them cheaper.
On the other hand, Gonzalez et al [5] come up with the strategic benefits associated
with outsourcing. IS outsourcing should ensure the strategic objectives for the company are
considered and focused on. It enables the company to focus on the already present skills on
crucial and strategic IT operations in the company. The outsourced and internal operations

9
working together to satisfy customer needs and flexibility benefit the company by ensuring
the company’s employees gain expertise and experience. The other strategic objective which
is a benefit from outsourcing is that the company is able to focus on its key competencies [5].
This is because, by outsourcing, the IS process is made someone else’s problem as the
outsourced group operates on its own.
Information System outsourcing is beneficial to a company since it can give access to
the leading technology [6]. This builds on the argument on the need for outsourcing. The
company can have the latest technology at a reduced cost/investment without the need for an
in-house development. The cost is also saved through a reduced investment for the hardware
and the cost of hiring which makes third party arrangement beneficial for acquiring high-end
technology [2]. This, in turn, improves the competitiveness of the company.
Other than the benefits, there are main drawbacks and challenges when it comes to IS
outsourcing. First, the question of flexibility and control of the operations by the vendor
creates a challenge. This contributes highly to the quality of software which is one of the
reasons why many companies prefer to keep their programmers in-house [4]. The vendor
providing IS outsourcing services may have conflicting interests with the company which
could lead to low-quality output. Again, the outsourcer may not take the client’s work with
seriousness as their own. It becomes easier for the company to monitor its internal operations
but more difficult when a third party is involved.
The other challenge is increased uncertainties when it comes to job security which
promotes personality upheavals. This lowers employee morale and creates anxiety which
reduces motivation at workplace and in return, productivity is affected at this time [6]. On the
other hand, job insecurity may drive senior employees to seek employment in other firms
which impacts negatively on the company.

10
The other main challenge is that choosing the wrong vendor could automatically lead
to a failure. This would mean that the vendor uses old and outdated technology which is less
beneficial for the company [4]. This means that the third-party vendor could deliver less than
expected which is a setback. Customer resistant is also possible where the customers fail to
trust the outsourced personnel especially overseas. Inability to understand the foreign
operators may be a cause for resistance due to the language barrier, increased doubt, and
cultural factors.
In conclusion, the outcomes of outsourcing depend on your choice of the vendor. If
the objectives of the company are in line with those of the vendor, the outcomes are expected
to be positive otherwise, they are undesirable. Different people have different views and
perceptions when it comes to IS outsourcing. Though the most credit is given to the ability to
reduce cost and improve technology, outsourcing is more than that which creates a need for
more research on the topic. On the weakness /risks side, the main fear for outsourcing is lack
of qualification, inability to comply with the contract and also inability to create meaningful
relationships between the client company and service providers which is important for
business.

11

12