Analysis of IT Outsourcing: Reasons, Risks, and Mitigation Strategies

This report provides a comprehensive analysis of IT outsourcing within the context of Management Information and Communication Systems (MICS). It delves into the primary reasons driving businesses to outsource IT activities, such as cost reduction, improved focus on core competencies, and access to specialized capabilities. The report also explores the significant risks inherent in outsourcing, including potential loss of control, vendor dependency, and security concerns. Furthermore, it outlines various mitigation strategies to address these risks, ensuring that businesses can make informed decisions and maximize the benefits of IT outsourcing while minimizing potential drawbacks. The report examines the role of MICS in monitoring business activities and performance and how communication systems facilitate information flow. It also provides real-world examples of companies that outsource their IT functions, such as TESCO and CPAs, to illustrate the practical application of the concepts discussed.

Management information and
communication-system

TABLE OF CONTENTS
QUESTION 1...................................................................................................................................1
1. Reasons behind outsourcing of information technologies activities by business enterprises. 1
2. Three important risk in outsourcing and various mitigation strategies..............................7
REFERENCES..............................................................................................................................14

QUESTION 1
Management information and communication system is considered as major external
term used for the information technology which provides stress on the role of various
technologies, unified communication software and telecommunication system as well as various
digital system that enables the enterprise and its users to access, transfer, store and manipulate
the information (Galegher, Kraut and Egido, 2014). In other terms, MIS is recognised as
computerized database which is used for programming and organizing the financial information
and other important information of business organizations in such a way that its produces regular
business reports on operations at every management level in the company (Ericsson, 2010).
MICS has been used in order to monitor business activities and the performance on managers in
the organizations. Mainly the information which is displayed on the MICS are actual data against
the planned results and its also used to measure the progress against the standards which are
developed by the organizations. It is an important software that receives data from the functional
or other business units of enterprise and some data are also being collected from the check out
counters that are linked with the computers which are to be shown by management in the
periodic intervals (Gagnon and et.al, 2012). Further, Communication systems are considered as
various processes through which both the formal and informal has been passed between the
managers and employees at the workplace or between the business and its outsiders or
stakeholders. There are various forms of communication are used like Verbal, written, non
verbal, visual or electronic has a major impact on the way through which the business has been
conducted.
1. Reasons behind outsourcing of information technologies activities by business enterprises.
IT outsourcing is mainly considered as contracting with the outside vendors to
accomplish there various functions like data entry, data centre operations, application
development and management, recovery, network management and operations.
Organization having large and wide business operations at national and international
level usually outsource their some major business functions to other companies which are
operating to manage some critical functions of these enterprises in market (Coombs, 2014).
Usually these major organization always outsource their functions related management of
information technologies and financial services to other these subsidiary companies in the
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market. For example: TESCO is an international retail brand which has its wide business
operations therefore its is not possible for them to manage all the functions they hired various IT
companies and outsource their business information technology activities like design, control and
operations (MA and et.al, 2010). Other example is CPAs in public practice and industry which
are considered as heavy users of information technology and themselves highly involved in the
design, control and operations of their clients and various companies' information systems. Thus,
they always provide suggestion to their clients to their clients or companies on using the outside
vendors to manage and get the support of information technology services (Krikidis and Schobe,
2014). Further, these informations' system and IT outsourcing vendors can also be individuals
having IT professional skills, consulting forms, employees leasing companies, full service
providers and CPA firms.
As per the critical analysis of literature (Jarle Gressgård and et.al., 2014), It is has been
understood that the Outsourcing of information technologies will provide competencies to
business enterprise to concentrate on core competencies, assess state-of-the-art technology and
increase the flexibility of organization as well as cost savings. Whereas the Critics of argument
by (Galliers and Leidner, 2014) for outsourcing of IT activities is that it creates too much loss of
control, questionable savings, less flexibility and various type of danger or risk of being hostage
by vendor or subcontractors. It is not considered as the effective for all IT problems in some
cases it has created various problems by having an intention to resolving. For example: CPAs
should need to analyse the risk and benefits when advising the clients or considering the
outsourcing of companies.
Further, there are various reason have also been identified for which these international
and small business enterprise always tends to outsource their information technology activities
like business analysis, business intelligence, communication technologies data analytics, project
delivery, research and development, security technology development, support, system
integration, web development, information management, software and architecture development,
networks and outsourcing services etc.
According to the index outsourcing index of institute there are many reason behind the
outsourcing of these important IT activities by business enterprise like:
 Reducing and controlling operating costs: As per the review of (Holtshouse, 2013),
organization at small, national and intentional level in Qatar usually outsource there
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activities to other CPAs firms for the elimination of costs which is associated with the
recruitment and selection of employees such as management oversights, training,
insurance, employment taxes and retirement plans etc. For example: Qatar airways which
is international airline company and has its business operations in various European and
other overseas countries and in order to fulfil the major requirements of there functional
units in other countries, management of company has hired various IT outsourcing
companies to manage their business activities and operations. Company has usually done
this because they find it more easy and less costly method of managing the business and
operations. These business enterprise are mainly responsible for hiring qualified
employees, compensation management, financial management, labour laws and research
and development functions of Qatar airways. On contrary to this (Laudon and Laudon,
2016), for outsourcing of IT activities is that it creates too much loss of control,
questionable savings, less flexibility and various type of danger or risk for Qatar airways
of being hostage by vendor or subcontractors. It is not considered as the effective for all
IT pr to retain employees for their highest and best use, rather than wasting their time on
things that may take them longer than someone who is trained in these specific areas. On
other side the company don't have anyone who can manage your IT needs, and hiring a
new employee is not in the budget. Outsourcing can be a feasible alternative, both for the
interim and for the long-term. Maximize restructuring benefits. When you are
restructuring your company to problems in some cases it has created various problems by
having an intention to resolving.
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 Improvement of company's focus: Critics of journal implies that it is neither practical
nor possible for the enterprise to manage all the trades and handle different business
operation in which the engaged. Outsourcing of activities have provided major
opportunity for the management of organization like Qatar airways to identify there core
competencies to survive in competitive business environment by analysing research and
development reports which are provided the outsourcing agencies of enterprise. On
contrary to this (Vick, Nagano and Popadiuk, 2015). It will not be beneficial for
enterprise in some cases as it causes major losses to enterprise if there is any type of
problem or default in the reports and financial statements by these constants or agencies
because these reports have been used by the enterprise for development of its future
strategies. Gaining the access to exceptional capabilities: As per the critical analysis, there are
various companies in across country whose return on investment is very high when they
outsource their information technology to a other firm that provides specialized services
in areas as per the requirements of enterprise (Conger, 2015). Outsourcing has been
considered as effective and suitable as it enables the enterprise to gain an collective
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Illustration 1: Benefits of IT outsourcing
Source 1: (Vick, Nagano and Popadiuk, 2015)

experience of team of IT professionals. Outsourced IT enterprise always have needs for
their IT staffs to posses proper industry training, experience and certification as well.
Qualified Individuals will provide correct statements and information to the company by
making an critical research and evaluation of other competitors in market. For example:
Real estate company in Qatar named as “al Faisal Holding” also out sourced there
financial management services to CFAs companies in order get major benefits and
achieved exceptional capabilities (Sultan, 2013). There are various business possibilities
of increasing the business operations has been provided by outsourcing as it reduces the
time of enterprise to increase there potential capabilities as well as increasing the
business opportunities and success of business operations and services Resources are not available internally: It is also considered as valid and important
reason behind why the companies outsourced their activities to other IT consultants or
firms as they don't have potential and highly qualified employees at workplace who
manage their IT needs, hiring of new employees, financial and information management
in the estimated budget (Hislop, 2013). For example: Qatar airways management also
find outsourcing as feasible option both for short and long term business operations. Maximise the restructuring benefits: When the companies are restructuring there
business to improve the costs, service, speed and quality then their non core functions of
business may get pushed aside (Malhotra and Majchrzak, 2014). They still have a need
to be handled therefore, outsourcing is considered as effective way to this job. Further, It
has also adopted by enterprises those have less financial strength and have a estimation
that their business operations will tend to grow in the future. They also outsource training
programs of IT for their employees to other companies so that they provide them perfect
knowledge and practical experience of operations management. Functions difficult to manage and control: Enterprise at international have various
business units, subsidiary and ventures in domestic and other countries. As per the view
of (Da Xu, He and Li, 2014), It is very complex task for major enterprise to manage and
control there IT activities like functions of getting market analysis, project delivery,
development and management of various software, network management, development
of architecture for establishment of companies new business operations and services by
employees. Major activities which requires outsourcing is data analytics which involves
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the analysis of data to develop relationships and describing events. It involves making a
comparison between the previous year and financial year data to analyse the performance
of company in market and analysing the need to development of strategies to increase the
business performance (Chua and Banerjee, 2013). For example: various petroleum, gas
and oil companies In Qatar use this approach in order to manage and controlling the
business Information technology and they also take their support in order to provide easy
access to their clients. Various communication system are provided by these outsourced
agencies through which companies can easily communicate with their customers in order
to provide them information about new products and services of brand and analysing the
expectation of customers (Lin, 2014). There are various important business aspects and
performance measurement activities are also outsourced by enterprise to other
professional so that they can provide positive and unbiased results to organization.
Outsourcing of firms' financial management functions is also significant for stakeholders
of companies in order to get actual understanding about the financial position and growth
in industry.
 Make availability of capital funds: Critical analysis of various literature has provided an
understanding that delegation of authority for accomplishment of activities that requires
highly qualified employees. By out sourcing non core business functions, you can spend
your capital funds on the items which are directly related to their products and
expectation of their customers (Talluri and et.al., 2013). With effective outsourcing of
services, companies will be able to provide actual data and information about the
financial performance of their business units and venture in other countries. With
effective understanding of business information and they will be able to develop effective
plans and policies to get financial resources. By analysing the growth in company's
operations, all its shareholder and other investors will tend to increase their investments
in order to gain more profitability.
On the contrary to this, (Chopra and et.al, 2014) has argued that Outsourcing in some cases also
become a major impacts on the business performance of enterprise as they provide will provide
wrong information to customers and which will affect the sale of enterprise. It also causes failure
when enterprise gets wrong information about there customer's expectation and demands through
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research reports and organization will make strategies and investments according to fulfil those
requirements.
 Reduce risk: Management of enterprise software development and management
functions by other professionals and companies will decrease various risk for companies
like Hacking of data, technical difficulties, fraud cases, loss of important information and
reducing the time for accessing the information (Al-Tawfiq, Zumla and Memish, 2013).
A recent study has provided an understanding that majority of senior managers viewed
their companies IT functions as cost burdens rather than strategic resources They also
perceived internal IT departments as being outdated, inflexible, expensive, unmanageable
and lacking a customer's orientation etc. Further, companies in Qatar are competent
enough to adapt to a business environment in constant flux, so their IT functions have to
respond quickly for changing demands. As per the view of (Marques and Bernardino,
2014), application of new technology, software and other equipments will be very
expensive for organization and time consuming. The professional or outsourced IT
services providers work with large number of clients and they have a need to keep up
with the industry best practices, therefore they have better experience about what is
correct or wrong. This type of experience, skills and understanding will ultimately reduce
the risk of companies in Qatar of application cost affective and wrong decisions.
Thus, it can be said that there are various important reasons for which the organizations
outsource their information technologies functions as they will find it more beneficial and cost
saving function which will provide opportunities to enterprise to concentrates on the growth and
development of business. It is also said that the view of various journals and literature may
contrary to each as they reflect the information and findings of different people. It also reduces
risk and various important factors that provide support to enterprise as they have various
business important business functions.
2. Three important risk in outsourcing and various mitigation strategies.
Anytime company give their someone else responsibility or task for an aspect of their
business., whether a full-time new hire or an outside vendor, there is risk involved. Risk is the
potential of gaining or losing something of value (Zurich, 2017.). When company give
responsibility to their vendor or any other person for some task, then it can be risk for the
organisation. There are some risk which faces by the organisations and its mentioned below:
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 Some IT functions are not easily outsourced:Each and every company need IT
department for the entire system and operational work. In the companies, if they not use
IT department then they will not able to get the best reward from the employees and
customers. It affects an entire company, from the simple tasks employees every day to the
complex automated aspects. Be sure the outside vendor are qualified to take care of their
greatest needs. Company need to know that their vendors are qualified or not about their
IT works. In the organisation, IT plays an important role in the system, so they should to
know about their vendors, their educations, and their degree. Heir education must be in
IT as hardware networking, Ccna, ccnp etc. If they are graduated from these types of
education, they can work smoothly in the organisation (Cohen and Olsen, 2013). This is
very important for company that they hire vendor with lot of knowledge and information.
When your company6 gives some responsibility to their vendor, then it is necessary that
their vendor will give their best and take care of entire work. If they will not be able to
give their best or they can not take care of the work then it will be the biggest risk for the
organisation. Company may face some big issue from IT department. It will be big issue
or problem for the company, because their entire department can be explore in another
area. So they should take care of their IT department and make some effective strategy
for manage the risk in IT section. It is the very useful activity in the business, because
they will not face the same problem. In the company, it is not easy to get effective result.
There are different types of risks, which can face by the organisation. That entire risk can
be manage if their IT functions will work according to company's rules and regulation. If
they will not work according rules and regulation, then they will face lot f risk about IT
management. It is very important to take care of the IT^ functions their work (Liu and
Wang, 2014).
 Control may be lost: Critics argue that an outside vendor will never be as effective as a
full-time employee who is under the same management as another employees. Other
concerns include confidentially of data and disaster recovery (Liu and Deng, 2015).
However, a supervisor that is knowledge in managing IT staffs member will usually be
required. In the organisation, number of employee are working, but they are the effective
worker in the organisation. Other than that, company hire some outside vendor for
different task, so they will never be as effective as a full-time employee who is in same
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management. Company can trust on their full-time employees but can not trust on their
outside vendor. Outside vendor is one of the main risk for any of the organisation. If they
will trust on them, then they can misuse of the entire information of the company. It will
be very dangerous risk for the company, because if they lost their control, then they can
not be able to handle their entire management (Chopra, S. and et.al., 2014). Their IT
staffs required that their entire data will be safe and confidentially, so no one can get the
data. It is very important thing in the organisation that they will take care of their
information and data very securely. The biggest risk is explored the data from the
company. It is very critical concern that may face by the company. When an organisation
make their rules and regulation, they should make a rule for the confidentially of the data,
so their data can not explore in another market (Johnston and Marshall, 2016).
Company's data is the most important factor in the system, so they should take of their
data through outside vendor and IT department.
 Employee morale may be affected: It is specifically true that company will be laying
off employees to replace their job functions with an outsourced firm. Other employees
may wonder if their job is at risk, too. Some time companies replace some function to
another employees or employees to another firm , through it, entire worker can be in
thinking about the reason of these types of decision. They may wonder if their job is at
risk. So organisation should take care of their employees, so they will not get the troubles
at their work place. Through it, employee can be affected, so they should give the
responsibility according to employee's profile and education or knowledge. There are
some effective way for mange the entire employee (Sukru, Cetinkaya and Uysal, 2014.).
Through it, they can decrease the risk level in the organisation. They can follow or use
the software to communicate clearly about compensation. When they will use this system
then they will be able to manage their employees and communicate with them in
appropriate way. Their managers and supervisor can encourage a team atmosphere, so
employee can be motivated for their better work (Ker and Ker, 2014). This is a important
activity which can be in the organisation for risk minimizing. There are number of people
who hired for different work, so company should pay them for their worth. So, they will
get the effective salary, and it will help company in increasing their profitability and
decreasing their risk level in the business. Employees play the important role in the
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company, they can minimize some risk at their level, so company should give them an
better importance then outside vendors.
Risk mitigation can be referred as taking steps in order to reduce adverse effects.
Basically there are four types of risk mitigation strategy that holds unique to continuing the
business operations (Verner and et.al., 2014). Basically there are four type of risk mitigation
strategies which can be used by those enterprises who have outsourced there information
technology functions with an aim of reducing the cost but a fear that their information will be
effective and that hold unique to business continuity and disaster recovery. It is important for
enterprise to develop a strategy which is closely relates to and matches the profile of enterprise.
Further, risk mitigation can also be defined as using or taking effective measures by the
management of enterprise to take company from the potential and important risk which can harm
there business performance and position in market.
Further, there are various important business operations that requires continuous
Monitoring are also be outsourced by the enterprise in order to provide special importance and
gaining various important business operations. In the organization, various important business
operations needs to be taken in to consideration for gaining various important business measures
and success of operations. Further, these business purpose can also be set by the enterprise in
order to receive the business prospects and gaining importance in the market (Scholten, Sharkey
Scott and Fynes, 2014). Further, analysis of various literature and critics of journals have
provided an understanding that there are mainly four risk mitigation strategies which can used by
enterprise in order to reduce the risk like complexity in outsourcing IT functions as it contains
various critical aspects, control on the information and functions can also be lost, morale of
employees in organization gets affected and lack of secrecy as some subcontractors can also
transfer the information of enterprise to its other business rivals which will affects its financial
and market position (Herrera. M, 2017). These risk mitigation strategies are as follows: Risk acceptance: Accepting the problems are not considered as reduction in effects but it
is still analysed as strategy. This strategy is considered as common option when the cost
of other risk management options such as avoidance or limitation will be high for
enterprise and they do not have the potential to change to transfer their risk on other
enterprise (Coombs, 2014). It implies as step of company towards analysing and
accepting the limited risk which will not provide major on company in the form of
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