Benefits and Disadvantages of IS Outsourcing: A Detailed Examination

This report provides a comprehensive analysis of Information System (IS) outsourcing, detailing its advantages and disadvantages. The benefits discussed include cost control, labor cost reduction, increased business operation efficiency, enhanced focus on core business activities, risk reduction, and organizational stability. The report also explores the drawbacks, such as potential communication issues, timeliness constraints, ethical considerations related to data visibility, poor service quality, and hidden costs. The analysis draws upon various academic sources, including Laudon and Laudon (2016), Rivard and Aubert (2015), and Zhu, Ng, Wang, and Zhao (2017), to provide a well-rounded perspective on the topic. The report highlights the importance of carefully considering both the positive and negative aspects of IS outsourcing before making strategic decisions.

Running Head: IS OUTSOURCING
IS OUTSOURCING
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IS OUTSOURCING
I. BENEFITS OF IS OUTSOURCING
The major benefits that are enjoyed due to
Information System Outsourcing are as follows: -
Control Information System Costs: According to
Laudon and Laudon (2016), Information System
outsourcing have been benefitting the
organizations in terms of lowering the cost that is
incurred in the IT management process. With
implementation of IS Outsourcing, proper and
efficient budgeting can be performed. As per this
system, the organization needs to pay only for the
amount of resource they will be using. This
ensures that the fixed Information System cost is
transferred to variable cost. The company need
not pay a fixed amount in regular manner hence
budgeting process gets highly efficient.
Reduction in Labor cost: In case of having a fixed
Information System, the main issue that is faced is
that a complete set of employees will be required
for maintaining the functional process of the IS.
The employees are to be trained vividly for proper
management of the IS. This training is not very
cost efficient. With incorporation of IS
outsourcing, the main advantage that is enjoyed is
that the organization need not employ a complete
set of employees throughout the year. They can
seek expert advice for the sections that are under
usage and no employees will be required for
constant maintenance of the system. Hence the
overall labor cost that is required in owning an IS
is much higher than that of the labor cost that is
incurred in the process of IS outsourcing.
Efficiency of the business operation increases: As
per Rivard and Aubert (2015), for having an in
house IT team, it is necessary to have a well-
trained team. This well trained IT team will be
focused on the functioning of the Information
System. Proper research is to be performed by the
in house team to stay updated regarding the latest
technology that is in use. This process not only
requires high investment but also consumes a lot
of time. Information Outsourcing acts as an
efficient alternative that helps in reducing the time
as well monetary investment on the Information
System. This helps the business organization to
focus on their ultimate goal and perform as per the
scope of the project that they have undertaken.
The extra funding can be used for the operational
process of the project. Instead of the employees
performing research regarding the operational and
maintenance process of the IS they can perform
research on the project that they will be working
on. This will increase the accuracy of the
operational process.
Staying focused to the business: Aubert, Houde,
Rivard and Patry (2017), stated that it is seen that
each and every business has limited resources.
Hence with elimination of the funding in IS
system in a fixed manner will be increasing the
efficiency of the entire business processing,
Distractions due to high complexity in the IS
process is also mitigated. This helps in focusing
on the major issues of the business management.
Reduction of risk: Robustness of the Information
systems that are outsourced are comparatively
higher than that of the Information Systems. The
main reason behind this is that there are many
organizations that has been using the same
Information system and hence wise the third party
IS provider takes proper care in maintaining the
robustness of the Information system. As the in
house Information system is not used by people
other than the employees of the organization, no
proper investment is made on the security of the
system. This ensures that the robustness of the
entire system reduces. This lead to the aspect that
data breaching from these systems is much easier.
Another aspect that can be considered is that the
third party Information system provider also takes
responsibility regarding the safety of the data that
are being stored or transacted via the system.
Hence it can be stated that IS outsourcing helps in
mitigating security issues.
Increases the stability of the organizations: As per
Zhu, Ng, Wang and Zhao (2016), the cost that is
incurred in installing an in house information
system is very high and hence were unaffordable
by the small scale organizations. With the
introduction of the IS outsourcing, it got easier for
the small scale industries to use the technology of
Information System. Hence the operational
process of small scale organizations have got
better. This ensures that they will be succeeding
in their business section as well.

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IS OUTSOURCING
II. DISADVANTAGES OF IS OUTSOURCING
There are few disadvantages as well due to the
Information Outsourcing as well. According to
Zhu, Ng, Wang and Zhao (2017), the main issue
that is to be considered includes the fact that the
communication process in between the client and
the business organization suffers. This poor
communication process will be affecting the
employee organization engagement. This also
leads in decreasing of the satisfaction level of the
clients. With gradual decrease in customer
satisfaction level, revenue collection process also
gets affected. Hence it can be stated that despite
the preciseness in the operation of the IS
outsourcing process, communication process gets
hampered in a negative manner. In case the
organization had an in house Information System,
they could have established a constant connection
in between them and the client. This would have
increased the satisfaction level of the clients. This
process will also help in better proper higher
revenue collection in an indirect manner.
According to Patil and Wongsurawat (2015),
timeliness implementation will be acting as a
constraint. It can be stated that there might be a
situation of emergency where one might need to
use the technology of Information System.
However, in case of IS outsourcing this option
gets unavailable. This unavailability of options
will be affecting the functioning process. This
also acts as a major reason of not using IS
outsourcing. In case the organization has an in
house IS, they could have used the same in the
time of emergency. Hence this absence of the
Information System in time of emergency acts as
a major disadvantage.
Again Gilley, Rasheed and Al-Shammari (2017),
stated that, the data that is transacted in between
the client and the organization is visible by the
third party that has been providing the
Information System. This issue leads to ethical
aspects. This ethical aspect is to be considered.
The ethical dilemma that is caused due to the
unauthenticated power of the third party resource
provide acts as a major disadvantage to the
Information System outsourcing technology. This
might lead to losing of faith of the clients. This
might lead to losing of clients. In case the
organization has an in house Information system,
they need not be dependent on the third party
resource provider’s involvement. Hence this acts
as another disadvantage of Information System
outsourcing.
Receiving poor service from the third party
resource provider is also another aspect that is to
be considered as a disadvantage. It is often seen
that the maintenance of the Information system is
not made in a proper manner. In case of any error
in the functional process of the Information
System, at times the service provided by the third
party organization is not up to the mark and hence
affecting the organization in a drastic manner.
As per Lee, Kim and Kim (2016), there are
certain hidden costs that are present in the IT
outsourcing process. This IT outsourcing from
foreign IT organization has several hidden costs
that are not stated during the agreement. This
leads to inappropriate budgeting and the
estimation issues arise.

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IS OUTSOURCING
References
[1] K.C. Laudon and J.P. Laudon, Management
information system. Pearson Education India,
2016.
[2] S. Rivard and B.A. Aubert, Information
technology outsourcing: An introduction.
In Information Technology Outsourcing
Routledge, 2015, (pp. 15-34).
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Control, Coordination, and Performance in
Complex Information Systems
Outsourcing. Journal of Computer Information
Systems, 2019, (pp.1-11).
[4] K.M. Gilley, A.A. Rasheed and H. Al-
Shammari. Research on outsourcing: Theoretical
perspectives and empirical evidence. In Global
outsourcing strategies, 2016 (pp. 41-56).
Routledge.
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Patry, Determinants of contract completeness for
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Establishment and Operation. The Journal of The
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