As industries become competitive, firms and organizations have been using their core competencies to gain competitive advantage. Outsourcing has become one of the strategies adopted by businesses to manage their Information systems (Gonzalez, Gasco & Llopis, 2006). In the same time using blue ocean strategy to create uncontested market space and make the competition irrelevant is considered a magic framework for company's growth and success.
To begin with, changing business climate found many firms looking for alternative ways to provide improved quality in their products, improved service to their customers, reduce time and cost to achieve company’s goals and get profit and reputation. Furthermore, the global trade has opened the competition doors for companies, and placed these companies under unprecedented competitive pressure. Businesses thus must understand how to maintain their competitive advantage, remain competitive in a volatile consumer market and overcome the critical problem of global competition. Outsourcing IT functions was one of the tools that used for surviving in the market competition, and has become a popular source of competitive advantage.
As a result of both strategies, a major trend in evidence is the outsourcing of various organizational functions, and accelerated technological advances have substantially improved industrial productivity. So in the domain of information systems and technology, outsourcing has become a viable strategic alternative to acquire and managing costly as well as complex information technology (hereafter called IT) (Grover, Cheon & Teng, 1994). And in the domain of products and services, Blue Ocean has become a starting point for a company to win in the future. (W. Chan Kim & Renée Mauborgne 2005) and works parallel with the outsourcing strategy.
The researchers have agreed that Information technology adoption offers a means of saving costs and increasing administrative efficiency. Krass (1990) indicated that outsourcing IT services can save 10-50% in IT expenditure. Based on that many companies nowadays have started to cut staffs, costs, and increasing efficiency by paying other companies and transferring some of an organization's recurring internal activities to outside providers (Maurice F , 1999) in order to run IT and other support divisions to remain competitive such as, telecommunications companies.
Those companies now are realizing the importance of developing their outsourcing capabilities and enter into arrangements with vendors to handle support processes (e.g., logistics, distribution, warehousing and information technology).
In truth, firms have outsourced since the industrial revolution, and Information Systems/Information Technology (IT/IS) outsourcing has become a basic strategy and has experienced considerable growth all over the world over the last several decades (King, 2008; Beasley et al., 2009) and this growth is expected to be continued and maintained in the near future (Gonzalez et al. 2006c; Beasley et al., 2009) – WHY? Because is considered an effective way to create competitive advantages by lowering costs, increasing productivity, and allowing the organization to focus on its core activities (Davis et al. 2006; King 2007; Can et al., 2009).
Overview of IT Outsourcing
Information Technology is considered as non-core functions of outsourcing, the idea of outsourcing is also applied for the procurement of IT services. Studies have shown that organizations have been outsourcing IT functions since the early 1960s (Due, 1992; Lacity, 1992). From data processing in the 60s, modern day IT outsourcing has made significant strides with a variety of business processes being outsourced. The use of outsourcing is becoming more sophisticated and nowadays more organizations are outsourcing business processes. As companies grow in size and operations, they outsource some of their business processes to focus on their core competences to remain competitive. Therefore, it becomes increasingly clear that their focus has to be redirected to their core activities while the non-core functions can be 'clouding' or 'outsourced' to suppliers or third party specialized in that particular function. Information Technology – Information System IT/IS one of such areas commonly outsourced in most of organizations.
IT Outsourcing as tool also has a challenge and has its downside. When functions are shipped elsewhere, the organizations will face risks from several areas. I would list some of these challenges that could affect negatively on organizations characteristics as follows:-
Firstly, security, privacy and confidentiality. Security can be a major issue. (Barthelemy and Geyer, 2004) maintained that outsourcing vendors’ reputations are not the best with information systems professionals. A company can better control access to information and protect equipment when it is on site (McDougall). Offshore assets and information in the server or possession of another company are much harder to protect, such as, customers background details, profiles and others. Therefore, customers’ information needs to be protected and, almost as importantly, feel protected (Thibodeau).
Secondly, the quality of personnel and work cannot always be guaranteed. Companies or organizations could face low quality or huge delays in work because they are at the mercy of the outsourcer. The contracting company does not interview and hire personnel, the outsourcer does. So If outsourcer hires poor skills workers just to fill seats, then quality is sure to suffer (Ross and Westerman)
Thirdly, High turnover at offshore providers is also another issue. Retention rates are very low overseas. The means large losses of efficiency as personnel are continually retrained (Overby).
Fourthly, Lack of flexibility, entering a long term contract with IT computer vendor may prove to be disadvantage when changing business or technological circumstances or even restructuring the firm which bring a need to migrate to alternative solution or process.
Lastly, Impact the local jobs and competence of IT functions Innovation and even. Outsourcing will reduce the organization’s capability for creative organizational development. Thus, it might face a reduced competence to innovate through synergetic interactions (Susan Cramm, 2010). Besides, from its distance position the vendor could have a limited potential or experience to acknowledge and develop some specific needs of the outsourcer, this in turn, will let competitors rapidly replicate offer same service or any advance upon any such innovations (Mata et al., 1995).
From other perspective, researchers have seen that without the ability to outsource, organizations could lose competitiveness. Outsourcing (IT) allows companies to rapidly add talented people and more capacity. A firm needs good process discipline to outsource effectively. As noted there were hundreds companies enter into outsourcing agreements without that. This can lead to escalating costs, poor results, and difficulties managing the relationship (Murphy, 2004).
As a result of both strategies, a major trend in evidence is the outsourcing of various organizational functions, and accelerated technological advances have substantially improved industrial productivity. So in the domain of information systems and technology, outsourcing has become a viable strategic alternative to acquire and managing costly as well as complex information technology (hereafter called IT) (Grover, Cheon & Teng, 1994). And in the domain of products and services, Blue Ocean has become a starting point for a company to win in the future. (W. Chan Kim & Renée Mauborgne 2005) and works parallel with the outsourcing strategy.
The researchers have agreed that Information technology adoption offers a means of saving costs and increasing administrative efficiency. Krass (1990) indicated that outsourcing IT services can save 10-50% in IT expenditure. Based on that many companies nowadays have started to cut staffs, costs, and increasing efficiency by paying other companies and transferring some of an organization's recurring internal activities to outside providers (Maurice F , 1999) in order to run IT and other support divisions to remain competitive such as, telecommunications companies.
Those companies now are realizing the importance of developing their outsourcing capabilities and enter into arrangements with vendors to handle support processes (e.g., logistics, distribution, warehousing and information technology).
In truth, firms have outsourced since the industrial revolution, and Information Systems/Information Technology (IT/IS) outsourcing has become a basic strategy and has experienced considerable growth all over the world over the last several decades (King, 2008; Beasley et al., 2009) and this growth is expected to be continued and maintained in the near future (Gonzalez et al. 2006c; Beasley et al., 2009) – WHY? Because is considered an effective way to create competitive advantages by lowering costs, increasing productivity, and allowing the organization to focus on its core activities (Davis et al. 2006; King 2007; Can et al., 2009).
Overview of IT Outsourcing
Information Technology is considered as non-core functions of outsourcing, the idea of outsourcing is also applied for the procurement of IT services. Studies have shown that organizations have been outsourcing IT functions since the early 1960s (Due, 1992; Lacity, 1992). From data processing in the 60s, modern day IT outsourcing has made significant strides with a variety of business processes being outsourced. The use of outsourcing is becoming more sophisticated and nowadays more organizations are outsourcing business processes. As companies grow in size and operations, they outsource some of their business processes to focus on their core competences to remain competitive. Therefore, it becomes increasingly clear that their focus has to be redirected to their core activities while the non-core functions can be 'clouding' or 'outsourced' to suppliers or third party specialized in that particular function. Information Technology – Information System IT/IS one of such areas commonly outsourced in most of organizations.
IT Outsourcing as tool also has a challenge and has its downside. When functions are shipped elsewhere, the organizations will face risks from several areas. I would list some of these challenges that could affect negatively on organizations characteristics as follows:-
Firstly, security, privacy and confidentiality. Security can be a major issue. (Barthelemy and Geyer, 2004) maintained that outsourcing vendors’ reputations are not the best with information systems professionals. A company can better control access to information and protect equipment when it is on site (McDougall). Offshore assets and information in the server or possession of another company are much harder to protect, such as, customers background details, profiles and others. Therefore, customers’ information needs to be protected and, almost as importantly, feel protected (Thibodeau).
Secondly, the quality of personnel and work cannot always be guaranteed. Companies or organizations could face low quality or huge delays in work because they are at the mercy of the outsourcer. The contracting company does not interview and hire personnel, the outsourcer does. So If outsourcer hires poor skills workers just to fill seats, then quality is sure to suffer (Ross and Westerman)
Thirdly, High turnover at offshore providers is also another issue. Retention rates are very low overseas. The means large losses of efficiency as personnel are continually retrained (Overby).
Fourthly, Lack of flexibility, entering a long term contract with IT computer vendor may prove to be disadvantage when changing business or technological circumstances or even restructuring the firm which bring a need to migrate to alternative solution or process.
Lastly, Impact the local jobs and competence of IT functions Innovation and even. Outsourcing will reduce the organization’s capability for creative organizational development. Thus, it might face a reduced competence to innovate through synergetic interactions (Susan Cramm, 2010). Besides, from its distance position the vendor could have a limited potential or experience to acknowledge and develop some specific needs of the outsourcer, this in turn, will let competitors rapidly replicate offer same service or any advance upon any such innovations (Mata et al., 1995).
From other perspective, researchers have seen that without the ability to outsource, organizations could lose competitiveness. Outsourcing (IT) allows companies to rapidly add talented people and more capacity. A firm needs good process discipline to outsource effectively. As noted there were hundreds companies enter into outsourcing agreements without that. This can lead to escalating costs, poor results, and difficulties managing the relationship (Murphy, 2004).
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