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Outsourcing It

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Outsourcing Yet Another Service: IT
Ryan S. Pavlak BRIT (R)(MR)
Independence University

Outsourcing Yet Another Service: IT In the world today saving the ever so precious dollar bill is the most important thing to almost every business. The outsourcing if information technology services is just another way for a company to potentially save money. Information technology services is not the first service to be outsourced and it is surely not the last. The reason it seems so beneficial is typically because of how mismanaged the internal information technology services, like what was taught earlier in this course. But is it really beneficial to outsource information technology services and who are really outsourcing their information technology services? The cons along with other pertinent information about information technology outsourcing will be discussed further.
Who is outsourcing As technology has advanced over the past few decades the age of the internet and information has blossomed. With this developing industry came the need for a service to keep it up and running smoothly, that’s where an information technologist specialist comes into play. This can include any organization from a hospital to a flower shop, if the organization uses technology the need to service those serves will be there. So who is actually outsourcing this service? An article written in the Journal of Accountancy explains that large companies are outsourcing their information technology services,
“But this is not simply a big company trend. Smaller companies also are taking advantage of outsourcings benefits, often contracting out portions of their IT to industry-specific consultants or facilities management companies. For example, short- term contract specialists, such as Users Inc., cater to the credit union industry. Smaller companies also outsource IT maintenance functions, such as help desk and training departments” (ANTONUCCI, LORDI, & Tucker, 1998).
Large and small companies are both utilizing the growing outsourcing IT market, but one may be benefiting greater than the other.
Cons to outsourcing When it comes to IT, managers often have a hard time calculating the cost of many of their functions. This is no different when it comes to outsourcing. In a survey that was performed by MIT Sloan Management Review out of 50 companies that were outsourcing their IT department, 14% were deemed a failure (Barthelemy, 2001). This is due to a few hidden cost of IT outsourcing. Vendor search and contracting, transitioning to the vendor, managing the effort, and transitioning after the outsourcing are four specific ways managers miss costs of an IT outsourcing.
Vendor Search and Contracting Prior to selecting which firm a company wants to use for its outsourced IT department. This cost is usually significantly underestimated. Considering the service is the same for both large and small scale organizations; the cost to research, negotiated, draw up contracts, and have legal sign off on the contracts a company typically spends half a million dollars (Barthelemy, 2001). This is where large corporations have a significant advantage over small companies, at half a million dollars most small companies would have already spent their potential savings.
Transitioning to the Vendor Once a vendor for the outsourcing is selected it is necessary for the vendor to learn your business in order to be helpful and functional. This extra cost of running two IT departments is difficult for managers to calculate. MIT Sloan Management Review found, “The average transition period when the organization actually incurred a cost was about a year. For 70% of the companies, the period was longer than 10 months” (Barthelemy, 2001). The key to transition to the vendor is knowing what you expect the vendor to do for your organization and informing them about it.
Managing the Effort There are a few different areas where managing the effort can cost a company money. Monitoring to see that IT vendor fulfilled their contractual obligations, bargaining with IT vendors, and negotiating any needed contract changes (Barthelemy, 2001). It can be difficult to manage employees working in the same building at times, managing and ensuring that an outsourced IT vendor is successfully taking care of all your contracted needs can be near impossible. The key to this issue is trust. Though it sounds crazy, trust, is the only way both parties is going to stay in a healthy relationship.
Transitioning After Outsourcing Unfortunately, many outsourcing of IT departments fail so the last hidden cost is either the switching of vendors or reestablishing the internal IT department. It is simple to see why this would be an unseen expense, a company would never go into a deal expecting it to fail. This is no different when it comes to signing a deal with a vendor to outsource your IT department, if the contract does not get resigned inevitability the outsourcing was a failure. To figure out the cost of this there are two different figures to look at. The first being the original cost of searching out a vendor, transitioning, and managing the new vendor. The second figure would be the cost to recreate the original IT department that the company shut down.
Conclusion – Outsourcing to Great a Risk There are plenty of organizations that end up saving money on outsourcing their IT department. The argument is that by utilizing an outsourced IT department the company will always have new technology and skilled workers covering it. But is the risk really worth the reward? With all the unforeseen expenses it seems that a manager needs to be fully informed and aware off all the costs of outsourcing. Without all the information it would be foolish to think that outsourcing will save the company money.

References
ANTONUCCI, Y. L., LORDI, F. C., & Tucker, J. J. (1998, June 1). The Pros and Cons of IT Outsourcing. Retrieved July 4, 2015, from Journal of Accountancy: http://www.journalofaccountancy.com/issues/1998/jun/antonuci.html
Barthelemy, J. (2001, April 15). The Hidden Costs of IT Outsourcing. Retrieved July 4, 2015, from MIT Sloan Management Review: http://sloanreview.mit.edu/article/the-hidden-costs-of-it-outsourcing/?use_credit=1271a7029c9df08643b631b02cf9e116

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