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Journal of Software Engineering and Applications, 2013, 6, 426-430 http://dx.doi.org/10.4236/jsea.2013.68052 Published Online August 2013 (http://www.scirp.org/journal/jsea) The Present Situation of IT Outsourcing and Countermeasure 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. Email: davidxxyspyshu@hotmail.com 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. ABSTRACT 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 discussion. 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- ing. 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- ing. 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% NeedtoaccelerateIT changestoenable… Needforflexiblecapcity model Needtoaccess expertiseunavailable… Theoutsourcedservices arenotacore… Reducingoperating costs KeyDriversofITOutsourcing 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 future; 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 428 3. IT Outsourcing’s Advantages and Disadvantages/Problems 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- ment. 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- non. 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 questions: 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- sue. 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- cation. 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% Laggedlevelof … Staffhighattritionrate … Qualityandserviceissue CostSavingissue Lackoftransparency Loseflexibility Knowledgeleakage 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 430 [4] IBM Corporation, “Extend the Business Value of Out- sourcing: Turning Provider Relationships into Innovation Partnerships.” 2008 2009 2010 2011 2012 A40% 37% 32% 33% 25% B42% 35% 36% 31% 29% 0% 10% 20% 30% 40% 50% 2008 2009 2010 2011 2012 A74% 75% 80% 79% 81% B72% 74% 76% 78% 78% 65% 70% 75% 80% 85% [5] B. Wang, “New Trends and Competition Status of Inter- national Outsourcing Industry.” http://www.beyondsoft.com/insights/node/61 [6] G. Casey, “The Current State of Outsourcing and What It Means for the Business Analyst.” (a) (b) Figure 4. (a) Attration rate; (b) Customer satisfaction rate. Source: Constructed by the author. [7] Corporate Computer Services, Inc., “IT Outsourcing: The Reasons, Risks and Rewards.” http://www.corpcomputerservices.com/articles/outsourcin g-reasons not only by cutting down the costs. [8] M. J. Earl, “The Risks of Outsourcing IT.” http://sloanreview.mit.edu/article/the-risks-of-outsourcing -it/ REFERENCES [1] J.-N. Lee, M. Q. Huynh, K. R. Chi-wai and S.-M. Pi, “The Evolution of Outsourcing Research: What is the Next Issue?” Proceedings of the 33rd Annual Hawaii In- ternational Conference on System Sciences, Maui, 4-7 January 2000, pp. 1-10. [9] J. Wallen, “10 Problems with Outsourcing IT,” 26 Janu- ary 2012. http://www.techrepublic.com/blog/10things/10-problems- with-outsourcing-it/3016 [10] S. Rai, “Indians Fearing Repercussions of US Technology Outsourcing,” New York Times, 9 February 2004. [2] Sheetal, “How Does IT Outsourcing Enhance Your Busi- ness?” http://www.virtualemployee.com/blogs/it-outsourcing-ca n-enhance-your-business [11] The Current Global State of Outsourcing. http://seekingalpha.com/article/224884-the-current-global -state-of-outsourcing [3] Archstone Consulting, “The Business Value of IT Out- sourcing Benchmark Report.” |