Information Technology Business Outsourcing and Off-Shoring

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The business world is changing drastically due to globalization. The economy is fluctuating at a high rate, the tradable services are changing and the needs and preferences of consumers are changing every day. Companies which used to enjoy abnormal profits are now facing a lot of competition due to the free entry of the market. To survive under such conditions, companies have to incorporate a mix of methods to reduce their production costs and at the same time improve quality and quantity of their products and services to ensure that they satisfy the needs of their customers. One method which has been greatly employed by companies is information technology business outsourcing and off-shoring.

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The work of Carmel and Tija (2006) recognized that the world is experiencing a massive advancement in terms of information technology. Supply chains and international cartels are incorporating IT to boost their operations. These services are being traded by many companies all around the world due to the developments which have been realized in the field of information technology. Companies in Europe and America have discovered that there is availability of cheap, effective and efficient IT services overseas. These companies have embarked on outsourcing such services to improve their operations. They have realized that there are companies which can offer these services at a cheaper price as compared to what it would cost to hire local experts who offer the same services.

According to the McKinsey report released by NASSCOM (2008) the IT sector has developed due to its increased application in business entities. The use of IT by companies has led to improvements in the operations of such companies due to its effectiveness and efficiency. In the early 1990s continental airlines was facing a number of problems, one of them being bankruptcy (Berger, 2006). To save the companies from this fatality, the managers incorporated the use of IT in the running and management of its organization (Wejman, 2010). To cut costs, they outsourced this service from overseas. Within a couple of years the company was stable again and was earning good profits. Similar stories are common in the business industry; hence almost all the firms all around the world are using IT for various reasons in their organizations. IT can therefore be credited for ensuring sustainability of companies in the market both in the short run and in the long run. Wejman (2002) viewed outsourcing as being cheap, effective and efficient; factors which have made it the perfect alternative to cut costs and improve operations of a firm. This strategy was successful and by the mid 1990s Continental Airlines had moved out of bankruptcy and had started to earn profits. This strategy can only be successful if it is embraced and supported by the managers and senior staff of a company.

The works of Cavoukian and Tapscott (2006) showed that the emergence of web 2.0 paradigm opened windows for Information Technology (IT) business outsourcing and off-shoring. Outsourcing has developed mainly due to changes in the market and industry conditions. There has been a common boost in outsourcing of information processes within business cycles. Organizations are currently under increased pressure to improve their performance and gain competitive advantage along with continually reviewing their operations with the aim of addressing threats emanating from changes in the external environment and harnessing the opportunities (Mani et al, 2010).

Competition and advancement in technology has changed the needs of customers of different markets. Customers have become more specific and require goods or services to be of high quality. Furthermore, they will only consume such goods if they are available at the best price. Jae-Nam (2008) stated that these changes are as a result of the need to constantly generate value and develop competitive advantage. This has led to a general appreciation of outsourcing as a cost cutting mechanism and strategy to ensure professionalism in delivery of products and services.

According to Gibb and Buchanan (2006) IT outsourcing involves organization outsourcing of computer based tasks or internet based tasks to an external company or consultant. Companies commonly outsource IT tasks like programming and software development. Yeaple (2006) advanced the argument that IT outsourcing is a subset of business process outsourcing that involves outsourcing of organizational tasks that need less technical skills.

The reasons for a company to outsource services vary depending on the needs, goals and objectives of the company. The lack of skilled labor, technical competence and unavailability of resources and equipment required to support implementation of a functional IT department or need to reduce costs and maximize on marginal revenue. IT outsourcing increases organizational flexibility through increased lead times, throughput and turnaround times that reflect positively on business processes. Therefore, IT outsourcing is dependent on efficiency of organizational supply chain management.

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Dutrénit and Vera-Cruz (2007) stated that the investment of an organization in IT outsourcing has been determined to make it possible for employees to reflect on rationale for restructuring, redesigning and developing business core competencies. This aims at improving the operations of an organization by having desired pubic relation skills and organization culture. According to Aldeye et al (2004) it is the role of managers and the administrative staff to ensure that customer engagement, development of customer relationships and improvement of business operational processes is achieved. This will ensure that customer interactivity is achieved and at the same time sustainable customer relationships are achieved. This forms a base which is required to build a favorable relationship between the company and its customers which ensures customer loyalty, brand engagement and positive online customer encounter (Cuadros et al, 2004).

Outsourcing is only required if a company lacks core competence in a certain field of expertise and the alternative of seeking these services overseas is cheaper (Berger, 2006). Companies should therefore seek outsourcing services which will concentrate fully on their field of core competence. In this way such companies will save a lot of time and money.

On the other hand, IT outsourcing has resulted into an increasing threat of homogeneous organizations that have equivalent core competencies which results into loss of business core competencies through exploitation of best practices in IT competitive advantage (Gibb & Buchanan, 2006). IT sourcing has been characterized loss of organizational independence that predisposes inability to manage operating costs (Bell, 2006).

According to OECD (2006) a lot of research based on the business continuity model has to be conducted in order to determine mechanism through which risks involved in IT outsourcing and off-shoring could be sustainably managed. Kaplan and Norton (2006) stressed on the fact that the sustainability and business continuity of an IT organization depend on level of quality assurance, level of quality monitoring, level of quality control and capability for exploitation of sustainability model on data operations, rationale for achieving sustainable IT associated tasks and mechanism customer engagement, customer interaction, customer loyalty could be maintained towards realization of customer retention, acquisition and close to real time interactivity.

References

Adeleye, B., Annansingh, F.& Nunes, M. (2004). Risk management practices in IS outsourcing: an investigation into commercial banks in Nigeria, International Journal of Information Management, 24, pp. 167-180.

Bell, R. M. (2006) How long does it take? How fast is it moving (if at all?) Time and technological learning in industrialising countries. International Journal of Technology Management, 36 (1), p. 25-39.

Berger, S. (2006) How We compete: What companies around the World are doing to make it in today’s global economy. New York: Currency-Doubleday.

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Carmel, E. and Tija, P. (2006) Offshoring information technology: sourcing and outsourcing to a global workforce. Cambridge: Cambridge University Press.

Cavoukian, A. and Tapscott, D. (2006) Privacy and Enterprise. The Big Idea, 1 (2), p. 1-26.

Cuadros, A., Orts, V. & Alguacil, M. (2004), Openness and Growth: Re-Examining Foreign Direct Investment, Trade and Output Linkages in Latin America, The Journal of Development Studies, 40.

Dutrénit, G. and Vera-Cruz, A.O. (2007) Triggers of the technological capability accumulation in MNCs’ subsidiaries: the maquilas in Mexico. International Journal of Technology and Globalisation, 3 (3), p. 315-336.

Gibb, F. and Buchanan, S. (2006) A framework for business continuity management”, International Journal of Information Management, 26 (2), p. 128- 141.

Jae-Nam, L. (2008) Exploring the vendor’s process model in information technology outsourcing. Communications of AIS, 2008(22), 569-589.

Kaplan, R.S. and Norton D.P. (2006) How to Implement a New Strategy without Disrupting Your Organization. Harvard Business Review 84 (3), 100-109.

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Mani, D., Barua, A., and Whinston, A. (2010) An empirical analysis of the impact of information capabilities design on business process outsourcing performance. MIS Quarterly, 34(1), 39-62.

NASSCOM, M. (2008) NASSCOM-McKinsey Report 2008: Extending India’s leadership in the global IT and BPO industries. New Delhi: NASSCOM ECD (2006) Trends and recent developments in Foreign Direct Investment.

Wejman, Brian (2010) Continental Airlines: Outsourcing IT to Support Business Transformation. International Journal of Communication, 2 (1), 19-25.

Yeaple, E. (2006) Offshoring: Foreign direct investment and the structure of US trade. Journal of the European Economic Association, 4(2-3), p. 602-611.

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