Outsourcing and Off-Shoring Information Technology

Introduction

The world is currently facing a lot of technological advancements in all fields of expertise. This has resulted in many ICT services being tradable due to the advancements that have been realized in the field of ICT (Carmel and Tija, 2006). Companies are thus outsourcing overseas for these services. This is because there are a number of companies out there 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. The increased use of ICT has not only led to the development of the ICT sector but has also led to the growth and development of other business sectors and entities. Companies can now produces, market, sell and distribute their products effectively and efficiently. Due to its high level of ICT, India has developed as one of the most favorable countries to seek for outsourcing and offshoring services (NASSCOM, 2008). This is because they have the technology and technical competence that has supported this industry making it sustainable.

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Emergence of web 2.0 paradigm opened windows for Information Technology (IT) business outsourcing and off-shoring (Cavoukian and Tapscott, 2006). 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. The needs and expectations of customers in different markets are becoming more specific and highly demanding on businesses. This increase is 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 (Jae-Nam, 2008).

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 (BPO) that involves outsourcing of organizational tasks that need less technical skills. An organization outsources for a variety of reasons for instance lack of adequate technical and human resources, lack of enough resources 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 (SCM).

From the research that has been conducted, it has been determined that IT outsourcing results into transformation of business fixed costs into variable costs, which contribute into an organization’s management of its costs structure and capability to sustainably manage its marginal returns. Through the achievement of capability to manage variable costs, organizations reduce opportunities for investing in assets which making them to have the potential to respond timely to market changes and hence focus on managing its core competencies and capability to sustain its competitive advantage in a competitive target market. 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 (Dutrénit and Vera-Cruz, 2007). For instance, customer engagement, development of customer relationships, and improvement of business operational processes towards increasing customer interactivity and achieving sustainable customer relationships that form basis for building lasting customer loyalty, brand engagement and positive online customer encounter.

Background

Over the years, outsourcing and off shoring have been a debate regarding information technology on whether they bring competition to organizations leading to growth of the economy or may lead to job loss thus economic devastation to the country. Outsourcing over the time has evolved to be an important component of organization overall business strategy by playing as a cost reduction tool for IT. IT outsourcing is not a homogenous function rather it is interrelated to all firms’ activities it is a strategic and is not a passing trend (Berger, 2006).

The incorporation of IT in the running and management of firms has saved a lot of companies and organizations from running into bankruptcy (Berger, 2006). For example, in the early 1990s Continental Airline was undergoing financial crisis which almost led to their bankruptcy. They however incorporated the use of IT, a move which improved the effectiveness and efficiency of their operations leading them out of bankruptcy. The use of IT has to be coupled with availability of competent staff who have the skills and knowhow of using this sophisticated technology. This requirement acts as a setback to most companies which want to use IT in their operations since they lack this kind of manpower. On the other hand, financial constrains make the situation to become even worse. Due to this fact, many companies have partnered up with outsourcing IT firms all over the world. These companies have the manpower, skills and technical knowhow that can lead to the operations of a firm to be effective and efficient. Furthermore, the outsourcing companies provide these services at a relatively cheaper price. This reduces the costs which companies would have incurred if they decide to look for local personnel to provide these services. Outsourcing is therefore cheap, effective and efficient (Wejman 2010, p. 22). This strategy was successful and by the mid 1990s Continental Airlines had moved out of bankruptcy and had started to earn profits.

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This strategy can only be successful if it is embraced and supported by the managers and senior staff of a company (Wejman 2010, p. 22). They should embrace technological advancement and acknowledge the fact that IT is necessary for the maintenance of the progress which the company is expecting to experience in the modern world where competition is so intense and the needs and requirements of customers have increased and are more specific. Top managers also realize that it is necessary to incorporate information technology in its operations since most of the innovations which they would want to put in place require IT as a base. IT is effective as it ensures that running of operations within a company is smooth, communication among the staff and between the company and customers all over the world is efficient. This will make the operations within the organization to become much faster and easier. According to Berger (2006) companies should therefore seek for outsourcing services which will concentrate fully on their field of core competence (p. 51). In this way such companies will save a lot of time and money.

Companies should adopt IT that is flexible in nature in order to with the changes in technology and industry and customer requirements that are always dynamic in the business world. This is because the world is dynamic and change occurs every day. For example, the IT which used by Continental Airlines has changed from mainframe to client-base and now the current system application is web-based. Therefore the IT of a company has to be flexible to meet their present and future needs (Yeaple, 2006).

Problem Statement

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). IT outsourcing and business off-shoring face numerous challenges, for instance incapacity of outsourced human capital to deliver customer expected service value, lack of clarity of contractual terms that reduce motivation and increase employee turnover, increased unstructured strategic human resource management based on incapacity to provide psychological contract that reinforces organizational employee ownership and capacity of employees to demonstrate organizational citizenship behavior, increasing varying requirements for IT outsourcing and off-shoring and lack of clarity in future sustainability of the service level. IT outsourcing faces the challenge of dependence on BPO that increases the threat of rigidity of business processes and decreases the advantage of flexibility of business processes.

IT outsourcing has resulted into 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 market competitiveness has provided opportunities for equivalence of service level which result into loss of brand identity and brand community and decreased market share. Development in the IT sector and Information System (IS) sector has resulted into leveraged technologies and threats of organizational quality improvement systems and adoption of equivalent quality improvement tools. IT outsourcing has been associated with security risks that are characterized by communication networks for instance non-encrypted networks, technical threats like unauthorized system access, lack of data security. There has been increasing threats that IT outsourcing cannot be implemented across continents because of threat of data access by unintended users, threats of virus and lack of device interoperability. IT sourcing has been characterized loss of organizational independence that predisposes inability to manage operating costs (Bell, 2006).

Purpose of the study

The purpose of the study is to identify the factors that have led to the emergence of IT outsourcing in businesses, the advantages that have been associated with the use of IT outsourcing and off-shoring in businesses, the factors limiting the use of this trend in businesses and to determine the public opinion as regards the use of outsourcing and off-shoring as an alternative to the use of human labor.

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Theoretical framework of the study

The study builds on Business Continuity Model (BCM) in order to determine mechanisms through which risks involved in IT outsourcing and off-shoring could be sustainably managed (OECD, 2006). Business Continuity processes (BCP) of 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 (Kaplan and Norton, 2006)..

Research questions

  1. What has led to the uptake of IT outsourcing and offshoring in the current business environment. What are the factors that were present before this trend in business?
  2. What are the advantages that have accrued to businesses as a result from this use IT outsourcing and off shoring?
  3. What are the disadvantages of using IT outsourcing in business and the factors that have limited the use of this trend in some of the businesses?
  4. What is the public view regarding the use of outsourcing and off shoring, the impacts to the public and their opinion regarding its use in the businesses?

Goals and objectives

  1. To determine threats and risks that affect IT outsourcing hence or otherwise determine mechanism through which the risks and threats of IT outsourcing and off-shoring could be sustainably managed
  2. To determine factors that has contributed into decreased organizational investment in IT outsourcing and off-shoring and hence or otherwise determines root causes of the problems
  3. To determine elements of IT outsourcing and off-shoring that could be utilized towards development of IT business continuity model

Hypothesis

  • Ho1. Outsourcing and offshoring has led to the growth of business in terms of revenues received and the volume of trade engaged in.
  • HA1. Outsourcing and offshoring has not led to the growth of business in terms of revenues received and the volume of trade engaged in.
  • Ho2. The emergence of outsourcing and offshoring has had significant limitations and implications on the labor force in terms of employment.
  • HA2.The emergence of outsourcing and off shoring has not had significant limitations and implications on the labor force in terms of employment.

Nature of the study

Qualitative methodology will be utilized to determine the results of this research paper. Both primary and secondary data will be collected for the research. Secondary data will be collected first. This is because this data is critical in determination of the methods that will be used to collect primary data. Secondary data will be attained by reviewing works which have been done in the field of IT especially on off-shore outsourcing. This information can be from books, magazines, peer reviewed journals, online articles and other relevant sources. Through literature review, the methods which had been used in the previous studies can also be borrowed and applied in the current study. Also the recommendations of the previous studies will be considered in the current work. Information from literature review is therefore used as a guiding tool in conducting the present study.

This will then be followed by the collection of primary data. This approach will entail a series of interview and administration of questionnaires on selected focus groups (employees). The interviews will be held with business owners and sellers of this technology who have utilized and sell IT outsourcing and off-shoring. The interviews will be critical in providing direct insight on the advantages as well as the limitations associated with this trend. The questionnaires will be administered to the employees of these businesses and to the general public that have knowledge regarding the use of these two trends. The importance of administering the questionnaires is to cover a wider scope of contributions to the study.

In order to construct a questionnaire that will be precise and straight to the point, qualitative data has to be analyzed and interpreted first. This information will assist in the making the questionnaire making it to become more powerful in the collection of quantitative data. The resulting questionnaire therefore will be precise, flexible and be able to collect only the relevant data that is needed for the research study. The administration of questionnaires will follow the following procedure:

  • There will be a total of four sessions to conduct interviews each day.
  • The interviews will be conducted in the morning, midday and evening.
  • The number of participants in each session will range from 8 and 10 individuals.
  • Each session will take about 60-90 minutes.
  • Techniques: Construction (visual)

All of the interviews will be conducted by the researcher together with the help of a moderator. This will ensure that all topics of the study have been precisely covered. To ensure this a predetermined agenda will be used.

Raw data from the field is of no use since it does not make sense. It is mainly composed of numbers and codes which need to be analyzed in order to make sense. Analysis of data involves three major steps:

  • Data preparation which involves the organization of the data which has been collected for easy analysis.
  • Descriptive statistics which entails the description and interpretation of the data which has been collected. This can be done by the use of charts and bar graphs to explain the trends which have been observed.
  • Inferential statistics that is done to test whether the data which has been collected is consistent with the hypothesis of the study. This is where either the null hypothesis or alternative hypothesis is proved to be true.

For accurate analysis of the statistical data a computer programme called SPSS 16.0 will be used for descriptive data analysis. The data will be explored using descriptive statistics and histogram plots will be used to determine the shape of the distribution for each sample variable. The name given to each variable for the purpose of the data analysis will be given in a table. Data analysis will be carried out using parametric tests where the data will follow a normal distribution and where the sample number will equal to or greater statistical power. Where the data will not follow a normal distribution or where the data will be split into groups of less than the sample size (n), non-parametric test will be used. For example a Pearson correlation test will be carried out on the data to explore any linear relationships between the variables.

Significance of the study

The study findings will result into identification of risks and threats that affect IT outsourcing and off-shoring, rationale communication channels could be structured towards supporting close to real time communication and interaction through cloud computing, and capacity for sustainable customer-business relationships. The study results will identify mechanism business-to-business communication and business-to-customer communication that could be structured and designed towards reducing threats of IT outsourcing and off-shoring. The results would contribute into determination of mechanism through which direct communication could be managed, rationale for managing data logs and framework for cost management, quality improvement, management of human capital, and contract management. The findings would result into determination of rationale for managing threats of IT outsourcing and off-shoring through determination of mechanism for accessing human capital, recruitment of human capital and capability for enhancement of innovation capacity and rationale for improving on throughput and time-to-market.

Policy implication of the study

The study findings will be instrumental towards determining the mechanism through which threats that affect IT outsourcing and off-shoring could be reduced and provide foundation through which organization could redesign their IT systems towards reduction of risks associated with IT outsourcing and off-shoring.

Conclusion

With outsourcing and offshoring even in complex organizations, there are factors that drive them to be the best option for the organization. These two are able to improve and maintain the organization process at low costs but provide qualified resources which is every firms aim to yield high results at low cost at the right time. Many offshore vendors have well trained IT personnel who are able to provide many services for a firm. These personnel are efficient, fast and affordable, unlike many employees who are not IT qualified yet they demand high payments. This makes the outsourcing and off shoring IT the only good option for many firms. Furthermore, the outsourcing and offshoring of IT firms have certificates that proves their ability to deliver and execute good and highly rated quality work. This assures the firms that the vendor will not only offer them satisfactory work but they are experienced because they have recommendations from other organization they have worked for previously. This also ensures the clients that if the services do not meet their requirements, they will have a protocol to follow to ensure the errors can be rectified and each person can be answerable for their workings.

References

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.

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.

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.

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.

OECD (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.

Appendix

Definitions

  1. Information Technology – The combination of electronics and computing to acquire, process, store and disseminate information which are either in form of numbers, pictures or texts.
  2. Outsourcing – Seeking for services outside an entity which could be otherwise provided within the entity.
  3. Offshoring – Relocation of the services or operations of a company to another country.
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