Analysis of Information Systems Outsourcing Methodologies in Business

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INFORMATION SYSTEMS OUTSOURCING
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VICTORIAN INSTITUTE OF
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Abstract— In order to better manage the Information
Systems, companies now rely on outsourcing plans which have
become a primary strategy in their business plan. The need for
Information systems outsourcing has grown multiple folds in
the last few years because of which a rise in the amount of
literature over this area has been observed. Thus, with a view
to assessing the key topics, the most commonly used
approaches & the people who have made a contribution to the
information systems outsourcing field, this paper was written.
This paper offers an analysis of information systems
outsourcing methodologies practiced by businesses and what
are the benefits of doing so. We will also look at the challenges
in outsourcing information systems.
Keywords—IS outsourcing, benefits, challenges
I. INTRODUCTION
The practice of hiring assets & resources for managing the
information systems from a third party organization rather
than managing them by themselves with an aim to handle
the IT function better is called IS outsourcing. Industries, for
example, sometimes outsource data storage since
contracting with a private entity is cheaper than buying and
maintaining their own data storage systems. There has been
a significant growth in the outsourcing & is now observed as
a core strategy for business. Some analysts also predict that
this growth is expected to grow in the years to come. IT
outsourcing functions may include a range of services from
web development, telecommunications management,
hosting, application management, technical support,
database development and many other services from the
same sector. The outsourcing organization can be placed
just nearby the company hiring the service or even be
located far from them. A product development organization
hiring a third party to develop its online marketplace located
far away or a digital marketing agency hiring call center
within the same city are both examples of information
systems outsourcing. Outsourcing, also incorporates
essential services, Saas i.e. software as a service and cloud-
enabled externalization, they help customers build the
correct strategy and vision for the supply of products, select
the appropriate IT services providers structuring the best
contracts & regulating business agreements for sustainable
winnings with external suppliers. Outsourcing allows
companies to cut expenses, speed up time to market &
benefit from third party expertise, resources & intellectual
property. There are various types of outsourcings such as
offshore, nearshore, onshore or domestic, managed services
and others similar to them.[5]
II. BENEFITS AND CHALLENGES IN INFORMATION SYSTEMS
OUTSOURCING
A. Benefits
In this section we will see why organizations are inclined
towards choosing to outsource their IT requirements.
1. Cost reduction: Outsourcing enables organizations
to eliminate extra costs such as those of hiring staff
to manage services, training costs, other employee
related costs to company. Hiring a third party for
these services is much cheaper. Fixed IT costs are
converted into variable costs & budgets are
efficient. Businesses then only pay for what they
use.[2]
2. Company focus: When organizations outsource
such services, they get time to focus on their core
business driving factors. They are able to improve
strategies and methodologies of their business as
they do not have to deal with areas which are
supporting pillars of the organization but not the
major business drivers.
3. Better competitiveness & increased efficiency:
Organizations which attempt to carry out all IT
services on their own can have significantly
increased research, development & implementation
times all of which increase costs which are finally
transferred to customer. It also makes it possible to
get such work done which requires special skills
which are not available locally.[1]
4. Implementation of latest technology: The assets
and resources for starting new projects will be
already available with a top notch IT service
outsourcing organization. It could take several
weeks to handle the same project internally as it
would require the selection of right people for the
and might also require training. Top notch IT firms
bring years of initial experience to most
frameworks, which will save both time & costs
with an efficient implementation of services.
5. Reduction of risks: A certain percentage of risk is
involved in each business investment. Markets,
rivalry, rules of government, economic conditions
& technology all keep changing very rapidly.
Outsourcing suppliers accept and manage a lot of
this risk, particularly safety and enforcement
issues. With industry specific knowledge. In their
fields, they are typically far better off making the
decision about how risk can be avoided.
6. Difference between qualified and experienced: The
inhouse IT professionals might be qualified enough
for the job but at times when a serious problem is
encountered, no matter how hard they train they
might not be able to solve those problems as
quickly as a third party IT outsourcing company
would only because of the experience they have in
this field.[4]
7. Low costs for staff: The recruitment and training of
IT workers can be very costly, and transitory staff
do not always live up to their requirements.
Outsourcing allows businesses to focus on the
employees where it is most important.

B. Challenges
1. Not all functions can be outsourced easily:
Complete organization is affected by the IT
services. The most complex functions to most
simple functions are possible with these services.
But sometimes there are functionalities which
require the use of confidential information of an
organization and it might not be a good idea to
hand over that information to a third party. The
external service provider must also comply with all
the needs.
2. Lack of total control: Some organizations believe
that outsourcing such services would result in the
lack of efficiency and would lead to a loss of total
control over the infrastructure. The third party
cannot be monitored all the time and might not be
as productive as a full-time employee would be.
3. Difference in time: Some outsourcing companies
might be placed in countries with time difference.
In such cases there can be issues in communication
between the IT company and the one who is hiring
them for work.
4. Difference in work cultures of organizations: The
IT outsourcing company might not have the same
working practices as that of the organization who is
hiring them. This can be the result of disrupted
workflow between the two which can sometimes
cause delay in work and will require some time for
proper coordination between the two.[3]
III. CONCLUSION
After the analysis about how businesses are outsourcing
their information systems it was found that how outsourcing
can be beneficial to an organization. It is not always
possible for some companies to focus on their IT service
department as they do not have the adequate resources
required to manage them, in such cases IS outsourcing could
be the best solution. Another major benefit provided by
outsourcing is that the staff members can then lay special
focus towards the company’s major business logic and
driving factors. More employees can be hired to work
towards strengthening the business logic and standards
whereas lesser revenue will be spent on managing IT
services. These services when outsourced are handled by
experienced IT professionals who can deliver the completed
products faster than the in-house IT team. A variety of
services such as web development, data storage, cloud
services management, telecommunications etc. can be
outsourced with professionals specifically hired for each
kind of service. Doing so helps in achieving modularity in
the work structure which makes it efficient and easy to
work. Although outsourcing comes with a lot of benefits but
it also has some issues which if not handled correctly can
cause disrupts in the workflow. Some of them are the
differences in the work culture of the organizations, time lag
between the two companies resulting in lack of
communication.
REFERENCES
[1]J. Nyameboame and A. Haddud, "Exploring the
impact of outsourcing on organizational performance",
Journal of Global Operations and Strategic Sourcing,
vol. 10, no. 3, pp. 362-387, 2017. Available:
10.1108/jgoss-01-2017-0001.
[2]B. Aubert, S. Rivard and M. Patry, "A transaction
cost model of IT outsourcing", Information &
Management, vol. 41, no. 7, pp. 921-932, 2004.
Available: 10.1016/j.im.2003.09.001.
[3]S. Cullen, P. Seddon and L. Willcocks, "IT
outsourcing configuration: Research into defining and
designing outsourcing arrangements", The Journal of
Strategic Information Systems, vol. 14, no. 4, pp. 357-
387, 2005. Available: 10.1016/j.jsis.2005.07.001.
[4]A. Gurung and E. Prater, "A Research Framework
for the Impact of Cultural Differences on IT
Outsourcing", Journal of Global Information
Technology Management, vol. 9, no. 1, pp. 24-43,
2006. Available: 10.1080/1097198x.2006.10856413.
[5]"What Is Outsourcing and What Are the Benefits of
IT Outsourcing?", DAXX Nearshore IT, 2019.
[Online]. Available:
https://www.daxx.com/blog/development-trends/what-
is-outsourcing-benefits-of-outsourcing. [Accessed: 01-
May- 2019].