Information technology outsourcing or ITO is a company’s outsourcing of computer or Internet related work, such as IT Support or programming to other companies. The concept of outsourcing thereby helps the firms to perform well in their core competencies and thus mitigating rise of skill or expertise shortage in the areas where they want to outsource.
Why IT should be Outsourced?
- Cost savings — The lowering of the overall cost of the service to the business. This will involve reducing the scope, defining quality levels, re-pricing, re-negotiation, and cost re-structuring. Access to lower cost economies through offshoring called “labor arbitrage” generated by the wage gap between industrialized and developing nations.
- Scalability – To meet uneven staffing demands. Some companies facing large development projects expect that when those projects are completed, the need for development staff will decrease significantly. They don’t want to add new employees, only to lay them off in a year or two. Migration to a new technology base also creates uneven staffing demands, resulting in an increased demand for new skills and a decreased demand for old.
- Focus on Core Business — Resources (for example investment, people, infrastructure) are focused on developing the core business competence. For example often organizations outsource their IT support to specialised IT services companies.
- Cost Restructuring — Operating leverage is a measure that compares fixed costs to variable costs. Outsourcing changes the balance of this ratio by offering a move from fixed to variable cost and also by making variable costs more predictable.
- Improve quality — Achieve a steep change in quality through contracting out the service with a new service level agreement.
- Contract — Services will be provided to a legally binding contract with financial penalties and legal redress. This is not the case with internal services.
- Access to knowledge or specialized skills — Access to operational best practice that would be too difficult or time consuming to develop in-house.
- Access to talent — Access to a larger talent pool and a sustainable source of skills, in particular in science and engineering.
- Capacity management — An improved method of capacity management of services and technology where the risk in providing the excess capacity is borne by the supplier.
- Catalyst for change — An organization can use an outsourcing agreement as a catalyst for major step change that can not be achieved alone. The outsourcer becomes a Change agent in the process.
- Enhance capacity for innovation — Companies increasingly use external knowledge service providers to supplement limited in-house capacity for product innovation.
- To mitigate risk – Organizations embarking on high-risk projects generally look for outsourcing partners with deep domain expertise. While the buyer should never outsource total responsibility for the project, hiring additional staffers with relevant experience reduces risk.
- Creating leisure time — Individuals may wish to outsource their work in order to optimise their work-leisure balance.
- Liability — Organizations choose to transfer liabilities inherent to specific business processes or services that are outside of their core competencies.