The Outsourcing Dilemma
CIS Strategic Planning
To outsource or not to outsource, that is the question. It is indeed a question that a CIO, CEO, or IT manager is likely to encounter. It is not a simple question, nor is the answer simple, and there is not a one size fits all solution. As with any decision, it is good to face it with facts and without prejudice. This work shall discuss factors that help determine the answer, risks, benefits, cost analysis, and implications to the business.
Prevalence of outsourcing
How prevalent is outsourcing of IT function? Is it true that outsourcing in US companies primarily sends work to foreign countries? According to a Culpepper Compensation and Benefit Survey of 68 science and technology companies, 81 percent of companies surveyed outsource some IT function, while none of the companies did everything in-house and only 5 percent outsourced all IT function (Culpepper, 2007). The following table from the survey results shows the amount of domestic and foreign outsourcing (Culpepper).
This survey clearly indicates that outsourcing is prevalent, with prevalence to outsource to domestic service providers. The Gartner Group estimates that outsourcing will be a 50 billion dollar industry by the end of 2007 (Singh, 2006).
There are a variety of different outsourcing options available. Among these are software development, software support, hardware support, complete provision of an application and database environment, provision of server functionality only, provision of specific application capability, provision of business continuity functions, and provision of data backup and recovery functions. To further define outsourcing of software development, Nigel Atkinson of NeoWorks divides relationships between the provider and client into categories of "traditional" and "partnership" (Atkinson, 2005). The traditional relationship would suit the client that knows exactly what the solution will look like and do, whereas the partnership relationship would suit the client that only knows the functionality that is needed but does not know how the solution would look. The options being offered are constantly changing as outsourcing providers attempt to predict the needs of future clients and respond to needs of present clients. Outsourcing is a broad topic and this work will address it in a general rather than a specific manner, differentiating only where the options are completely distinct.
At the surface, it may appear that outsourcing would limit the control that the company would have over the IT function and resources, but is that really so? This question begs another one. Does the company have control now, or is the IT function already out of control? Can the company devote the kind of resource necessary to manage its own IT resources? Is it strategically a sound decision to have a department in the company that specializes in IT...