IT Outsourcing

Why Out-source?The decision to outsource is often made in the interest of lowering firm costs, redirecting or conserving energy directed at the competencies of a particular business, or to make more efficient use of worldwide labour, capital, technology and resources.
.Globalization, privatization, deregulation and technical innovation have increased competition in many industries, thus in order to increase competitiveness many companies have opted for outsourcing as a means of cutting costs, increasing productivity and refocusing critical resources.

Every company should define its boundaries; those activities that must be performed in house on all accounts and define those that are worth being trusted to contractors. When defining these one must proceed along the full cost principle taking the level of service, the costs and security factors into consideration.

Advantages of outsourcing:

• Costs are lower because the economies of scale at the service provider

• The client gets a service with measurable quality and predetermined price.

• Transparent, less complicated cost accounting

• Clear terms of responsibility

• Instead of high volume initial investments only operating costs emerge

• Amortization costs emerge at the service provider, too

• Knowledge based advantages: the service provider follows technical developments therefore it is easy to adopt to technological changes without in house research and development
• Fast implementation, constantly renewing functions
• The service provider has other hard-to-match advantages (like personal relationships)
• Gain in productivity
• Holds a positive effect on financial statements, return on assets is improved since lesser assets and employees are needed
• Only one contract should be signed with the service provider
• Managers time are not unnecessarily bound, resources can be freed
• High level, continuous stand by
• Guaranteed quality
• The outsourcer can concentrate more on its core activitie

Risks considered with outsourcing:

• Outsourcing is more difficult to control than own activities (this is an advantage as well since no resources are bound because of this)

• Good relationship and long term commitment needed to be formed with the service provider

• Can danger in house IT positions (this, however, gives the opportunity to concentrate on other, more important developments) <

• The service provider has access to the data of the outsourcer company (naturally the service provider is obliged to keep secrecy)