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To Outsource IT or Not to Outsource

IT is fast becoming a key lever which management can use to deliver operational benefits and to drive deal value. In fact all the strategic initiatives behind a transaction rely on IT and businesses can no longer ignore IT or view it as a back-office function if they want to achieve maximum deal value. IT not only drives synergies across these back and front office functions but also can be a driver of innovation in transactions. IT is changing how companies carry out their business and how they provide services. The biggest issues here are related to overall information management. This is where companies will see the highest impact on users. This clearly crosses multiple business functions as it affects.

The purpose of business – IT alignment is to optimize the value that IT contributes to the company. As such, in order to successfully outline a strategic IT roadmap, it is important to start here. Companies have to ensure that aligned IT strategy to business strategy is based on a shared understanding of how IT applications, technologies and services will contribute to business objectives in the short and long term.

Governing data today is our responsibility as a company, and there is clearly a need for common solutions and governance models to protect and share data on different levels across the organization. Moreover, the complexity extends beyond structured customer data. Effective data governance can play a vital role in driving new business opportunities and retaining existing customers by improving overall data quality and business intelligence.

Whether we choose to outsource or hire internally, one thing is certain, we must know how to manage successful working relationships with our IT service providers, clearly form and communicate the goals and objectives of your project or business relationship. Have a strategic vision and plan for the project or relationship. Select the right vendor or new hire through research and references. Insist on a contract or plan that includes all the expectations of the relationship, especially the financial aspect. Keep open communication with all affected individuals/groups. Access to the latest and greatest in technology is very imperative as outsourcing might give us the benefit of having more than few IT professionals in our company. Anytime we give someone else responsibility for an aspect of our business, whether a full-time new hire or an outside vendor, there is a risk involved. Did we hire the right person/company to do the job? Will they do what they are supposed to do? How will they fit with existing employees or departments?

Developments in cloud computing, automation software and big data technology are changing the way outsources offer services and how businesses consume them. Traditional application development and maintenance outsourcing is being shaken up as a result of cloud computing and the software as a service it brings.

Outsourcing can be a feasible alternative, both for the interim and for the long-term. Maximize restructuring benefits. When we are restructuring the company to improve costs, quality, service, or speed, your non-core business functions may get pushed aside. They still need to be handled; however, outsourcing is an optimal way to do this, as keeping up with technology to run our business is expensive and time consuming.

On the flip side, the practice showed numerous drawbacks attributed to outsourcing. Through outsourcing we may lose the control of activities that can be a survival component if the base competition changes. Due to the loss of control of an outsourced activity, we may face monitoring costs because of the fear of diminishing quality of services coming from the vendors’ attempts to cut cost. Cuts in staff due to outsourcing can damage the morale of the remaining employees and create a fearful atmosphere of unmotivated personnel. The most skilled may consider finding a better position. Large employees’ layoffs can be very damaging for the corporate image. Depending on the outsourcing motive, advantages in outsourcing can be operational and/or strategic. Operational advantages usually provide short term benefits, mostly attributed to cost cutting, while strategic advantages offer long term contributions in maximizing opportunities. It is imperative that outsourcing is strategically planned and performed systematically considering all aspects, risks and stakeholders.

Considering numerous benefits and potential drawbacks the outsourcing decision must be strategically determined i.e. made considering long-term strategic implications rather than concentrating on temporary cost reductions. Operational advantages usually provide short term benefits, mostly attributed to cost cutting, while strategic advantages offer long term contributions in maximizing opportunities. Outsourcing should not be used as an excuse to get rid of the poorly managed, costly or underestimated activity. Outsourcing enables the company to focus on core activities that can be neglected due to the dispersed management attention and offer time saving benefits along with the increased productivity leading to the responsiveness to market change. Traditionally, outsourcing decisions were focused on questions of core versus non-core activities, with the latter being candidates for outsourcing. Two major reasons causing failure of the outsourcing arrangement are the fact that the traditional approach is tactical rather than strategic and the relationships between partners are adversarial rather than cooperative.

The strategic approach should be designed to fit the company’s need to achieve the correct balance between vertical integration and the use of outside supply. The outsourcing decision therefore requires the analysis of a wide range of contextual factors and their implications on the competitive advantage of the company because the ability to manage and sustain sourcing relationships is increasingly essential to competitive success. We should also consider the broader perspective considering all stakeholders involved.

Management must permanently review the overall results and benefits of the outsourcing decision and arrangements in the context of the changing tech cost savings. Outsourcing our IT services might provide financial benefits such as leaner overhead, leasing options for hardware and software, and software licenses, as well as potential compliance with government regulations.

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