Outsourcing different it functions: a vendor-client relationship perspective

Résumé du document

We have all heard and read about companies moving their plants, development units or production facilities outside, as a result of outsourcing. The foremost reason of outsourcing seems to be the transaction cost theory that states that a "company should outsource activities if, to carry them out internally, would require excessive investment to get the lowest unit cost" (McIvor 2000, p.22). However these days, cheaper costs usually aren't the major force behind the outsourcing boom. Most organizations have realized that by outsourcing their non-core activities to external vendors, who perform them as their core competencies, they can concentrate more on their core competencies. Since core competences are being kept in-house, the concept of selective outsourcing has risen (Judenberg 1994, p. 37). Globalization has also facilitated the outsourcing process. The outsourcing organization and outsourced vendor can now embark on different relationships. This paper looks at four such relationship types (support, reliance, alignment and alliance) that come into play when outsourcing IT functions. One important thing to note is that two organizations that outsource the same IT function to the same vendor can have different relationships with the vendor. Interestingly, some outsourcing organizations also transfer their resources including employees to the vendor.

Extraits

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[...] Much about this will be discussed in chapter The longevity and the success of outsourcing depend greatly on the success of the vendor-client relationship (Webb & Laborde 2005, p. 438). When contracts expire there is a need to have an exit strategy focusing on the economic success of the IT outsourcing, core competence management, access to resources, and the maturity of the relationship (Gottschalk & Solli- Saether 2005, p. 700) Types of IT outsourcing According to Gonzalez, Gasco, & Llopis (2005, p. [...]

[...] So outsourcing these functions requires only short-term support relationships. For some organisations, application development and application maintenance still stands as one of their strategic activities. Therefore, when outsourcing these functions vendor-client can embark on long-term alliance relationship. Outsourcing data centers call for alignment relationship whereas reliance relationship can be used for outsourcing help desks. Considering the ever-changing IT environment, market and customer demands the outsourcing contract should be flexible. That is why outsourcing contracts are either for short or long term. [...]

[...] The external vendor to whom this application systems maintenance is being outsourced not only performs maintenance activities but also manages the process (Judenberg 1994, p. 38). In addition, current maintenance staff in the outsourcing organization can be fired, re-deployed or reallocated to vendor (Judenberg 1994, p. 38) Data centers The external vendor supports data processing of outsourcing organization by either integrating the mainframe with the client/server systems or migrating data processing from mainframes to new and more powerful platforms (Winder 1994). [...]

[...] Cost reduction is generally the major reason for outsourcing in this relationship (Kishore et al p. 89) Alignment relationship In alignment relationship, vendors are involved with more strategic activities although vendors aren't significantly involved with the clients (Nam et al p. 44) Alliance relationship In alliance relationship, vendors not only perform in-house operations but are also responsible for highly strategic activities (Nam et al p. 44). Therefore there is a mutual understanding between two parties and they work together as strategic partners (Kishore et al p. [...]