Information Technology (IT) Outsourcing Evaluation Term Paper

Pages: 6 (1739 words)  ·  Style: Harvard  ·  Bibliography Sources: 15  ·  File: .docx  ·  Topic: Business


This work is the conduction of a case study that examines the critical factors that impact the success of IT outsourcing initiatives. Demands are growing more stringent due to customers being more informed and educated and demanding lower prices and simultaneously the cost of IT supplies is rising. Outsourcing IT is an option many companies choose, although some for better and others for results that are what could easily be termed the "worst."

IT outsourcing is a big business in today's business world, however the service that is provided to customers in need of IT outsourcing is only as good as the IT itself. The IT service company should have a voice in management and business processes if the IT outsourcing is expected to be successful and profitable.


The aims and objectives of this research include answering the questions of: (1) what factors influence the success of IT outsourcing? And (2) what can be done to ensure that these factors are taken into account during and after outsourcing?


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The work of Poyhonen entitled: "Factors that Influence the Success of IT Outsourcing" states that: "With the ever-increasing pressure for cost reductions, outsourcing is a very tempting option for a company who wants to concentrate on it score competencies and let others take care of those functions which it has no competence or resources to focus on." The expected savings for a company for having outsourced is generally a savings of approximately 20% to 30%. Poyhonen states that: "The difference between companies that perform well with their outsourcing activities are those that are average is not in knowing 'what' to do. It is knowing that 'how' to do it well inside ones' own organization which makes the difference." (Poyhonen, nd) Factors that are stated to be those that can damage the outsourcing initiative are: "Wrong measurement, ambiguous contracts and unclear goals." (Ibid)

Figure 1 - Outsourcing Impact Framework

Short-term operational impacts Mid-term tactical impacts Long-term strategic impacts

Term Paper on Information Technology (IT) Outsourcing Evaluation Assignment

Efficiencies Performance Core competencies

Costs Savings Governance Control Learning competencies

Productivity Management support Culture

Contracts and Service Levels Risk sharing Strategic partnership


Findings are stated to include the requirement that understanding exists that it is important "that outsourcing governance requires input from both business and IT executives and that important decisions should be made together with all parties."(Ibid) Koh et al. (2004) states finding that: "outsourcing success was significantly related to the outsourcing provider obligation for clear authority structures and taking charge." (as cited in Poyhenon, nd) Additionally stated is that: "It is critical that the outsourcing company establishes skilled management infrastructure before the outsourcing takes place so that it can concentrate on managing the relationship after the outsourcing has been made. From a technical point-of-view companies should have a clear understanding of their business processes and good standards for communication and IT architecture."

Ibid) The better that the provider of IT outsourcing is able to understand this then the easier it will be for the providers to work within the guidelines. The work entitled: "State of IT Outsourcing" published in October 2006 states that: "Outsourcing some of the IT Portfolio remains a direction that a majority of companies will continue to invest in as part of their overall smart-sourcing or strategic sourcing strategy. Clearly the service and support function (Help Desk Level-1, Desktop Level-2 and Network Administration) of the IT Portfolio along with application development and network operations remain the most popular components to outsource. In September 2006, conducted a survey on the state of IT Outsourcing. The following facts are stated: (1) 93.30% of respondents said they would outsource again; and (2) 94.10% said they would recommend outsourcing. (Ibid) Although money can be saved through outsourcing IT, if customers are not being serviced productivity is affected impacting business. (Ibid) Outsourcing some of the IT Portfolio is stated to be a direction: "that the majority of companies will continue to invest in as part of their overall smart-sourcing or strategic sourcing strategy." (2006 State of IT Outsourcing) The most popular services to outsource are: (1) Help Desk Level-1; (2) Desktop Level-2; and (3) Network administration along with (4) application development and (5) Network Administration. Furthermore it is reported that "More companies are pursuing multi-sourcing and selective sourcing arrangements rather than the multi-year and multi-million dollar deals." (Ibid) The reports reveals that in the past 12 months approximately 50% of the companies contracted for provision of outsourcing services have ended their agreement prematurely. Of those companies 43% actually brought the work back in-house leaving the question whether these companies had a business driven sourcing strategy." (Ibid)

In September 2006 a survey of the state of IT Outsourcing was conducted by and McGarahan & Associates. Findings state the following: (1) 93.30% of respondents said they would outsource again; (2) 62.50% spend less than 10% of their IT budget on Outsourcing and predominately outsource or will outsource in the next 6 months; (3) 82.30 of respondents have less than 5 years experience with outsourcing but half have instituted the best practice of IT governance over the Outsourcing arrangement; (4) 62.50 are using a penalty clause attached to their SLA with their outsourcing vendor; (5) 88.20% that responded ranked their overall satisfaction with their outsourcing vendor as Very Good or Good; (6) 27.8% stated improved service levels as main benefits to outsourcing; (7) 33.3% stated cost reduction as the main benefits to outsourcing. (2006 Survey of the State of IT Outsourcing)

Question: What part of your IT Service & Support organization do you currently outsource?

Source: State of Outsourcing (2006)

Rate your overall satisfaction with outsourcing experience

Source: State of Outsourcing (2006)

What is the predominant reason for outsourcing?

Source: State of Outsourcing (2006)

Money can be saved outsourcing however if customers are not being serviced and productivity begins to be affected. Stated to be the most important metrics in managing an outsourced relationship is 'to support the need for a Balanced Scorecard approach to reporting the efficiencies and effectiveness of the Outsourcing vendor. Within these metrics illustrated is the critical nature of the measurement of "both the short- and long-term financial impact, customer satisfaction, getting results and quality." (Ibid) The balanced IT scorecard changes the management of the IT organization reinforcing accountability for "results, changes behavior, and focuses attention on areas that drive value. The model of Kaplan and Norton makes provision of a holistic approach to "Performance Measurement by supplementing the traditional financial measures" as follows:

Financial Perspective - is the company creating value for its shareholders;

Customer Perspective - How is the company performing from the perspective of those who purchase the company's products or services?;

Internal Business Process - How is the company managing its internal business processes to meet its client's expectations? Is throughput improving?;

Innovation and Learning Perspective - Is the company improving its ability to innovate, improve and learn? (Ibid)

The report states that the companies who are "single-sourcing a majority of their IT service and support components" are experiencing the following trends:

1. In Control - The customer is in control because they are more aware, better educated and better prepared therefore they have clear demands of what they want and what they are willing to pay for it.

2. Don't Outsource a Mess - Realization that outsourcing what is already a mess is not effective. The customer has finally realized that outsourcing a 'mess' doesn't work. Successful outsourcing involves knowing 'what' is being outsourced "in terms of work, internal costs and best practices."

3. Reduced Margins - Customer's are demanding lowering of prices.

4. Higher Expectations - Challenges exist for the vendor for improvement of service levels, customer service and quality while simultaneously the resources are more expensive, turnover continues to be a problem.

5. Sourcing Strategy - "Companies will continue to be more proactive regarding their Sourcing Strategy by updating it yearly, involving key business peers and aligning it with the business goals and objectives." (Ibid)

6. Core Competencies - "Quality, efficiency and unique business knowledge will remain the core reasons for companies being able to fight off the outsourcing demand from the C-Level Suite." (Ibid)

7. Subcontractor Usage - "Outsourcing companies will find resistance from customers over the use of subcontractors. One of the main reasons to outsource is to leverage competencies of the vendor that go beyond the customer's budget, desire or timeframe. These customers expect the vendor to invest in developing resources, best practices and technology to make their outsourcing investment in time and money worthwhile." (Ibid)

The work of Schaffhauser entitled: "Out-sourcing Survey 2006, Part 3: Success Factors in Selecting a Provider" states that the survey examines the "reasons IT outsource work in the first place, where they send their work, and the success factors in choosing an outsourcing provider." (2006) Six in ten respondents state that the most important factor in IT outsourcing was "identifying a partner with a commitment to quality."… [END OF PREVIEW] . . . READ MORE

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