Journal of Software Engineering and Applications, 2013, 6, 426-430 Published Online August 2013 (
The Present Situation of IT Outsourcing and
Xinyuan Xi1, Yingyu Xu2, Hiroyushi Todo3
1LeLe Mother’s Maternal Store Ltd., Shanghai, China; 2China Soft International Technology Service Ltd., Shanghai, China; 3Faculty
of Pharmaceutical Sciences, University of Toyama, Toyama, Japan.
Received June 16th, 2013; revised July 14th, 2013; accepted July 21st, 2013
Copyright © 2013 Xinyuan Xi et al. This is an open access article distributed under the Creative Commons Attribution License,
which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited.
With the market competition intensifies, enterprises focusing on core business has become the most important rules of
survival. Therefore, more and more enterprises adopt outsourcing as critical business initiatives due to its effectively
reduce costs, enhancing the core competitiveness of enterprises and other characteristics. Duroc, a famous American
management scholars had predicted: “In ten to fifteen years within any business background to support not only to do
the work of creating turnover should be outsourced.” Do what you do best (your core competency) and outsource the
rest. It has become an irreversible trend. In this paper, we will introduce the business value of IT outsourcing, discuss IT
outsourcing industry’s strengths and weaknesses, finally we will provide corresponding countermeasures based on the
Keywords: Outsourcing; IT Management; Countermeasure
1. IT Outsourcing Introduction and Its
Business Value
In recent years, many IT Outsourcing studies have been
conducted to address a variety of outsourcing research
issues. They mainly focus on five major areas: organiza-
tion, performance, decision, contract, and relationship [1].
Researches find that more and more organizations are
looking to IT outsourcing through third party services
providers. As the scope and complexity of IT expand,
many organizations are less inclined to shoulder the bur-
den of in-house development, since outsourcing allows
them to better leverage their resources and focus on core
applications to increase IT’s value to corporate missions.
In this paper, we will introduce information techno-
logy outsourcing or ITO first, then we will discuss its
disadvantages and corresponding action plans. First IT
Outsourcing is a company’s outsourcing of computer or
Internet related work, such as programming, to other
companies. It is used in reference to business process
outsourcing or BPO, which is the outsourcing of the
work that does not require much of technical skills.
Company’s primary mission is creating profits and
cost savings, but mature enterprise managers know that
the best way to save costs is increasing the productivity
of the unit employees. Modern enterprise internal struc-
ture is the combination of logistics, people, capital and
information and they work closely with each other, in
order to ensure effective operation of the enterprise. En-
terprise internal IT system has been playing an increase-
ingly important role in the enterprise internal operation,
there are many companies rely on IT system for business
operation, any part of the IT system failure will be more
or less affect the operation of enterprises, or even cause
huge losses. How to ensure the normal operation of the
organization? How to ensure that the business enter-
prise inside every employee productivity? This is the
target enterprise IT system maintenance services. Some
payment of maintenance fees, invite professional IT com-
panies and professional IT system experts to achieve this
goal is the most economic and the most rapid way though.
Figure 1 below summarizes the benefits of IT outsourc-
According to Corbett Group survey results about out-
sourcing market of more than 200 global large enterprise
decision-making character, outsourcing has become an
enterprise to enhance core competitiveness, reduce op-
erational costs and strategic means to consolidate its
market share. 97% of respondents say that the investment
in outsourcing service increases greatly during the last
Copyright © 2013 SciRes. JSEA
The Present Situation of IT Outsourcing and Countermeasure 427
Figure 1. Benefits of IT outsourcing [2].
two years, and the momentum will continue to be main-
tained; 78% of respondents believe that outsourcing has
become an important means of enterprise management,
and 92% of respondents reflect that their corresponding
business becomes outsourcing; 60% of the respondents
are satisfied with the results implementing outsourcing,
one of the most important aspect is the reduction in oper-
ating costs [3]. Also Corbett Group investigates the KPI
Drivers of IT Outsourcing showed in Figure 2. Reducing
operation cost is the first critical driver of IT Outsourc-
IT outsourcing has long been the subject of debate,
with questions centering on its ability to deliver projected
benefits and business value. Still, few would argue its
potential to impact the business in a positive way. Re-
search has shown that companies engaged in IT out-
sourcing consistently outperform their peers, with better
business performance and bottom-line results over the
long term [4].
2. IT Outsourcing’s Current Status
Most companies carry out projects using outsourcing, IT
outsourcing risk awareness is strong, but there is no
comparison to establish industry recognition for IT out-
sourcing management system best practices. Large com-
panies are generally large-scale employees and rely on
outsourcing vendors with a low level. The demand for IT
outsourcing management urgency is little. Their own
staffs in medium-sized and small companies are shortage
and high dependence of outsourcing vendors, IT out-
sourcing management needs are more urgent.
From an international perspective, it is well known
0%20% 40% 60% 80%
Figure 2. Key drivers of IT outsourcing.
that India has advantages in years of IT service experi-
ences, optimized business process, first-class manage-
ment, excellent English level, prof essional education sys-
tem, plenty of excellent talents, a batch of competitive
enterprises in large scale, strong support from the gov-
ernment and professional associations. All these advan-
tages promote India’s outsourcing industry to rank
among the world’s top. However, with some problems
such as decreased talent supply and increased recruitment
cost, cross-border corporations start to develop second-
tier markets such as China, Indonesia and Philippines in
order to diverse risks. China, together with India, is be-
coming one of the world’s largest offshore markets with
its abundant human resource, huge domestic demands,
improved infrastructure of public transportation and com-
munication, various market resources, strong attraction to
foreigners, and strong support from central and local
governments [5].
Based on research, future development of IT out-
sourcing business will be relatively stable and there will
be no big ups and downs. With their own management
level, medium-sized and small companies will adopt a
more proactive strategy to carry out IT outsourcing ac-
tivities. IT outsourcing development perspective will show
the following trends [6]:
1) IT outsourcing market will become more profes-
sional, centralized and large-scale;
2) IT outsourcing models will continue to develop in-
novative, steady development of the overall size in the
3) Regulatory bodies for IT outsourcing risk manage-
ment requirements will continue to increase.
It can be estimated that th e global outsou rcing industry
will usher in the golden period of development such as
specializing and integrating in the next 5 - 10 years. It’s
also a period of rapid development of domestic out-
sourcing industry through its service and technologies.
Copyright © 2013 SciRes. JSEA
The Present Situation of IT Outsourcing and Countermeasure
3. IT Outsourcing’s Advantages and
Outsourcing has become a strategic method to improve
enterprises’ core competitiveness, reduce operating costs
and consolidate their market share. Outsourcing meets
business objectives, encourages enterprises to focus on
their core business and competencies, help enterprises in
the evolving business and technology environment repo-
sitioning, which is the root cause of IT outsourcing. Ad-
ditionally, it also has the following advantages:
1) Improve financial status: Some of the financial con-
siderations can make use of outsourcing is especially at-
tractive. For example, it may provide an opportunity for
enterprises to liquidate its intangible IT assets to help
tissue remodeling budget information systems by out-
sourcing, ther eby impro ving corpo rate balance re port and
prevent enterprises from the uncertainty of future invest-
2) Cost savings and spend ing cuts: Compared with the
internal IT department, outsourcing service companies
can provide services at a lower cost; outsourcing of in-
formation services are provided by fixed costs into vari-
able costs which can be avoided with the expansion of
their business costs arising from the surge, enabling IT
budgets remain linear growth and the cost is easier to
predict and control, avoiding “IT black hole” phenome-
3) Gain information technologies and capabilities: IT
Outsourcing is able to get the most advan ced an d cu ttin g-
edge technology and skills; Again, companies can take
advantage of access to external equipment, services and
other aspects of resources; they transfer ease outdated
information technology and skills/risk to outsourcing
companies; help enterprises and outsourcing companies
sharing risks of new technologies.
4) Improve IT service levels: Outsourcing can improv e
the information service levels, improve service response
speed and efficiency. Outsource companies in some areas
than the internal information sector are always able to
provide higher quality services, outsourcing routine op-
erability and affordability of information services to en-
able enterprises to internal IT departments to focus on
those who can really create value for the enterprise ac-
tivities and applications, and enhance the efficiency of
the internal IT department.
5) Promote organizational change: In the early days of
a company, IT outsourcing can save a large amount of
initial investment, effectively alleviate the tensions ven-
ture funding period; outsourcing helps mergering, acqui-
sitions and restructuring activities.
6) Enhanced human resource allocation flexibility: By
outsourcing, companies don’t need to expand their hu-
man scale due to the drop of personnel employed or the
effort, cost pressures, and training expenses, increasing
the flexibility of human resources.
7) Improve internal IT staff's ability to learn: outsourc-
ing internal IT staff can reduce the pressure; outsourcing
routine operation and maintenance work, the internal IT
staff able to provide more learning new technologies,
new solutions opportunities [7].
Meanwhile, in some cases, the company will be based
on their own business development and IT building
needs to develop a system on IT outsourcing manage-
ment or process to standardize IT outsourcing manage-
ment, so that the resulting level of outsourcing services
can meet the desired objectives, however, as the com-
pany internal and external changes in the environment as
well as the further outsourcing services in IT outsourcing
management, there are still some of the more common
1) IT outsourcing management system is weak and not
under process, just based on previous experiences. Once
the outsourcing has been initiated, managing IT Opera-
tion on the outside is still far from easy. The third party
vendor may lack of process which can standardize the
daily work and workflow. If there are changes in the ven-
dor’s personnel or organization, the company has to in-
vest in building new partnerships and understanding how
things are done in the new regime. They will need to put
more efforts and cannot concentrate on their core busi-
ness. Obviously, the management system is Inefficient.
2) Hidden Costs. When cost reduction is the objective
of outsourcing, there is typically a promise of early cash
flow benefits and long-term cost savings. Conversely, it
may not know about future possible cost savings or fore-
see technological discontinuities. These issues are proba-
bly matters of judgment. Companies underestimate the
setup costs, including redeployment costs, relocation
costs, and longer-than-expected handoff or parallel run-
ning costs.
3) Employee relationships and Morale. Based on my
experiences, Full-time employees may consider that they
are supervisors of third party vendors’ employees. Some-
times, they may not pay attention to the tone of voice,
which can cause moral issues. Outsourcing engineers
will not feel well and this will cause further attrition is-
4) As a result of outsourcing, information security
problems may occur. Security measures may need to be
implemented to protect company data, employees, sys-
tems…everything can become a liability. You never
know when data is accidentally going to walk off on an
external hard-drive. All company or customer’s data is
sensitive and it is necessary to take security action for
this point.
Copyright © 2013 SciRes. JSEA
The Present Situation of IT Outsourcing and Countermeasure 429
5) Possible unstable technology skill level. We may
face IT outsourcing engineers’ attrition and moral issues,
how can we assure that their technical skills will keep on
a stable level? If the vendors’ skill level does not keep
unstable or advance, the cost-reduction potential is less-
ened, and unless further market testing is done, target
setting is suboptimal [8,9].
4. Main Issues and Solutions
We may encounter several issues while applying IT Out-
sourcing. We conducted in-depth interviews with Indus-
trial practitioners in two companies, one company is the
PC vendor, and another is the IT world-class company
and got the follo wing results in Figure 3.
There are 2 main issues:
1) Lagged level of operational management:
Many companies copy the successful experience of the
data, resulting in technical and management is not com-
plete, meanwhile, it also lacks of technology and experi-
ence. Additionally due to lack of user surveys and analy-
sis, application system maintainability and scalability is
poor which will bring many unfavorable factors for the
enterprise of the future development and practical appli-
2) Staff high attrition rate and senior talent shortage:
Whether equipment providers, operator service pro-
viders or IT outsourcing companies, the staff attrition
rate is relatively high. Some companies are even up to
60% staff turnover. Generally, IT outsourcing industry
lacks of senior technical, marketing and operations man-
agement personnel. The main reason for this situation is
that, practitioners are small and don’t have practical ex-
perience. Although there are some successful experiences
for reference, but after all, even with all aspects of na-
tional cond itions to adapt, it is impossible to gain a large
number of master advanced technology and operations
management personnel groups in a short time. Finally it
has not been established corresponding education and
training system for IT outsourcing industry.
Regarding the solutions for the issues, enterprises
should consider from IT outsourcing strategy formulation,
0% 10%20%30%40%50%60%
Figure 3. IT outsourcing main issues. Source: Constructed
by the author.
implementation needs in the organization, processes and
outsourcing key aspects of the life cycle. IT outsourcing
strategy should meet the corporate business development
strategy, IT strategic planning long-term objectives and
regulatory requirements. Company’s existing IT outsourc-
ing management and IT management are important foun-
dation to determine the maturity of IT outsourcing strat-
egy is feasible, whether it can be implemented.
IT outsourcing risk management needs enterprises to
develop practical risk assessment model, clear risk man-
agement process and good channels of communication.
We should develop a risk assessment model for IT out-
sourcing various stages of considering the risks, includ-
ing strategic risk, reputational risk, financial risk, com-
pliance risk contracts, service delivery, risk, etc. Depend-
ing on the IT outsourcing risk, we can develop appropri-
ate risk treatment measures (e.g. emergency plans, etc.).
IT outsourcing risk treatment measures applied to various
parts of outsourced activities, including supplier man-
agement, outsourcing personnel management, perform-
ance management, contract management. Outsourcing
management should have a clear organizational structure
and division of responsibilities clear boundaries proc-
esses and the system itself should be considered a com-
prehensive and thoughtful. It should be with the existing
IT risk management, security management combined.
Besides the implementation of processes systems, we
also need operation from the perspective of staff aware-
ness training and implementation. We believe that after
taking the above actions, the IT sourcing can keep in a
healthy status [10,11].
We conducted another investigation with industrial
practitioners in two typical IT outsourcing companies
(Company A and B) which have taken the corresponding
actions for covering above known issues. We can see
Figure 4 clearly that the attrition rate is down and QoS
(Quality of Service) is more stable.
5. Conclusion
Now that we have seen the advantages and disadvantages
(main issues) associated with IT outsourcing, there are
many things to consider about. Whether we use out-
sourcing or not, one thing is certain, we must know how
to manage successful working relationships with the IT
service providers. We should consider from IT outsourc-
ing strategy formulation, implementation needs in the
organization, processes and outsourcing key aspects of
the life cycle. Also we need a rigorous and keep improv-
ing process or risk management to guide IT outsourcing
management. It can make IT outsourcing pro jects institu-
tionalization, standardization, and maintain in a stable
level and keep improving. Thus our companies will pay
attention on their core business and make more benefits,
Copyright © 2013 SciRes. JSEA
The Present Situation of IT Outsourcing and Countermeasure
Copyright © 2013 SciRes. JSEA
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A40% 37% 32% 33% 25%
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2008 2009 2010 2011 2012
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B72% 74% 76% 78% 78%
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(a) (b)
Figure 4. (a) Attration rate; (b) Customer satisfaction rate.
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