Outsourcing of ICT
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Outsourcing of ICT
With the changing economic along with social systems, there have been huge changes in the development of information technology (IT) and communication system. One such change is associated with ICT, which signifies the technologies used for telecommunication, media, audiovisual as well as processing the network-based functions. The concept of ICT is similar to IT; however, the only difference is its scope (The World Bank Group, 2016). The CEO of the Case Study organisation has decided to outsource their ICT and this comprises the existing as well as the new systems.
There are different ways of categorising ICT resources and the activities involved. This is mainly because ICT is considered as an integral part of any organisation. It is required for performing various business activities. Technological development has resulted in the improvement of technology available within an organisation. This in turn has enabled the suppliers in diversifying the kind of services offered to the organisations. ICT business offers innumerable services, a majority of which can be outsourced (Prado, 2011). The table provided below in Figure 1 illustrates at a glance the scope of outsourcing for the company.
Many companies tend to follow ICT outsourcing for retaining their competitive advantages within the target markets. After the historic event of dot-com bubble, the concept of ICT off-shoring was formulated. It signifies that companies would set some services for the developing countries (Almalki, 2012). The outsourcing of the ICT services by the Case Study company will be more beneficial if it is carried in the low and middle-income countries. The rationale behind the selection is associated with the growth of telecommunication (use of mobile, internet and broadband) among the low and middle-income economies all round the world (Figure 2) (The World Bank Group, 2016).
Pros and Cons of Outsourcing ICT
According to Alexandrova (2007), in the modern management outsourcing, ICT is considered as one of most influential tools. A majority of organisations in the present competitive scenario prefer outsourcing. The reason behind the stated fact is that outsourcing enables improved ability to focus on the issues related to strategic dimension, along with gaining technology access, specialized expertise and improved services among others. Besides, outsourcing is different from partnership, joint venture and alliances. The difference is due to the one-way flow of resources that is from the suppliers to the outsourcers. One of the most common benefits of outsourcing is associated with the concept of cost reduction. In this regard, it is believed by majority of organisations that outsourcing of service (one or more) would be beneficial in terms of cost-cutting (Alexandrova, 2007).
Chukwunonso & Ribadu (2010) stated that ICT outsourcing enables the organisations to manage internal along with the external affairs of the business efficiently without any trouble associated with IT. The rationale behind the stated fact is that the supplier is completely responsible for handling the responsibility of any technical support (if required) as well as other consultancy issues. Based on the statement of Alexandrova (2007) that outsourcing is cost effective, it has been claimed by Chukwunonso & Ribadu (2010) that outsourcing of ICT is not confined to this benefit only. Outsourcing of ICT also facilitates a strategic move of the business, which enables gaining competitive advantage in the market. Another advantage is that it brings about wide-spread opportunities for organisations, for instance utilisation of experts and skill-set that was not possible normally for any organisation without investment. Organisations deciding to outsource must consider two factors i.e. to outsource ICT or not and steps that should be taken to make outsourcing successful. Considering the two factors, it can be highlighted that that organisations outsource to only those vendors who have the potential to perform a specific task or function efficiently. Besides, another advantage of outsourcing is to gain headcount reduction. The term headcount reduction signifies achieving minimum fluctuation in staffing, which is likely to occur due to alteration in the demand for the products and/or services (Chukwunonso & Ribadu, 2010)
The above pictorial illustration depicts few advantages and disadvantages of outsourcing. One of the vital advantages of outsourcing is improved quality of the services offered. According to Khan & Zafar (2015), outsourcing enables sharing the risk factor with the vendor. The vendor selected is considered to be a specialist thus is likely to develop risk-mitigating strategies and assist the organisation in ensuring quality performance along with reduced risk. In addition, outsourcing develops flexibility within organisations. This in turn proves to be beneficial for improving the effectiveness of organisation in terms of changing business environment. According to Kremic, Tukel & Rom (2006), outsourcing one of the business processes facilitates maximising the overall strength of the core business.
According to Arshad, May-Lin & Mohamed (2007), outsourcing is carried in different forms such as total outsourcing, selective sourcing and strategic alliance among others. These forms not only bring advantages for organisation but also have certain risk factors. From the discussion of pros, it has been apparent that outsourcing requires huge initial investment. Investment by the company incurs few risk factors such as it affects the performance of business, flexibility along with day-to-day operations. In this regard, it becomes essential for organisations to consider the quality of service, relationship with business partners and cost factor as important to reduce the stated risk at least to some extent. Prado (2011) highlighted few other risk factors in outsourcing such as exposure of confidential data. The Case Study organisation will involve outsourcing of ICT services, thus, it becomes essential to remain cautious about not revealing the company’s confidential information to the third party (suppliers/vendors). Another con is associated with the synchronisation of different variables. For instance, if an organisation is unable to recognise a suitable supplier, it becomes difficult to handle the delivery factor (time) and quality of service. The main reason behind the already mentioned fact is that managing tasks within an organisation is much easier as compared to that of the outsourced partners (Prado, 2011; Arshad, May-Lin & Mohamed, 2007).
The framework developed by Kremic, Tukel & Rom (2006) also highlights few risk factors associated with the outsourcing of services, which is a completely new process and involves huge cost (few costs are unknown), thereby posing innumerable challenging for any organisation. It has been further asserted that most of the outsourcing failure is associated with inefficient methodology. In this context, Kremic, Tukel & Rom (2006) argued that outsourcing failure is due to inability of the mangers in determining proper methodology for guidance. Often outsourcing is done by contracting with the international partners, which on the other hand also poses threats for the company due to the hidden cost involved apart from that of investment.
Based on the above analysis of pros and cons of ICT outsourcing, the following model has been proposed for the Case Study organisation to reduce risk and maximise the chances of success.
Outsourcing Delivery Models
There are many different outsourcing models based on the total number of suppliers. The model will be selected based on the outsourcing strategy of the case organisation. The company can follow the outsourcing decision process (Figure 5) to determine the most suitable model for implementation.
The following are the different outsourcing delivery models that can be used by the CEO of the Case Study organisation.
Different Models Of Outsourcing Implementation
Internal delivery This model is also known as homogeneous model of outsourcing and is associated with a single vendor or supplier. In this model, the ICT services are provided by the internal staff of the company
Shared Services This model requires the development of an internal department, which will be responsible for handling the outsourcing of ICT services
Independent Company In this model, a separate company is developed. The company will serve the ICT service requirement of the parent company along with the ICT market
Total Outsourcing A contract is made with a single supplier for most of the ICT services
Prime Contractor In this model, organisations hire a single supplier and offer a wide range of services. However, the single supplier in this case possesses the authority to get involved in sub-contract with other vendors as it is effective in delivering quality services
Best-of-breed consortium This model is different from the others as the client in this case is responsible for selecting the ICT outsourcing company and accordingly, the vendor is selected for better management of supply
Selective outsourcing In this model, organisations require to select suppliers, who possess the ability of performing necessary services efficiently
Joint Venture This signifies the development of a new organisation by two (or more than two) partners
According to the report of Huws & Dahlmann (2004), the business functions outsourcing includes software development, data processing, sales, customer services, financial functions, Human Resources (HR), Research and development (R&D). Thus, based on the category of outsourced functions, the team members of the case organisation will provide services to organisations of different sizes. The team will operate in different levels as presented in the figure 8 below. Furthermore, maintenance of ICT outsourcing at different levels is vital involving consulting, service management, desktop support, application support, infrastructure support along with supplier maintenance support. Future scope for ICT acquisition also exists in case the organisation acquires and/or merges with another company offering similar services. This will prove to be effective for both the case organisation and the acquired organisation for extending the overall scope of business.
It is assumed that the project is completed and the respective suppliers/vendors have been selected for outsourcing of ICT. The objective of the project was to select suitable suppliers for the organisation as its aims to outsource its existing as well as new ICT system. The company to find appropriate suppliers used the heterogeneous model of outsourcing. The pros and cons of outsourcing reflected that it is beneficial for the company to retain performance along with maintaining flexibility within the system. Besides, it was proven effective for the Case Study organisation in gaining competitive advantage in the market. However, the company is likely to face certain risk factors, which can be mitigated by implementing appropriate strategies. One of the effective strategies was evaluating the skills and competencies of the suppliers in offering the service along with contributing to the overall success of the Case Study organisation. In addition, the company has further scope of development by acquisition of ICT, held by other competing organisations with the aim of improving the existing system.
Suppliers for the project were evaluated based on the criteria for score designed in the above section. The evaluating team of the Case Study organisation was given the responsibility to analyse the potential suppliers/vendors. After selecting the suppliers/vendors, the KPIs were examined in order to determine their capability of ensuring long-term performance. From the overall discussion, it is recommended to the CEO of the Case Study organisation to improve its tender evaluation system from time-to-time for facilitating success in the outsourcing of ICT not only within the domestic market but also internationally.
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