1. Reasons for IT outsourcing
Cost & quality
Cheaper at same quality
Faster at same cost
Vendor can provide cheaper solution because:
Vendors run leaner shops with fewer over heads
May use off shore operations in India, Philippines, Ireland
highly skilled and up to date staff
Economies of scale
Better utilization of hardware capacity
Better negotiation of software licensing
Tighter control over inventories
Its their core business

2. Lagging IT performance Access to special technical skills
Other financial factors
can get quick cash against transfer of IT assets
Fixed costs become variable costs
Discipline amongst the user group as the $$s show up in the monthly bills and request for change costs
Easier to sell off divisions
HR concerns
Inefficient staff
Out dated staff
Over staffed but don’t want to fire (not a company culture)
Corporate culture
Vendor may bring much needed change in the culture
Large IT outsourcing arrangements are easy to enter but very hard to divorce
Major outsourcing agreements are done more due to strategic reasons rather than operational reasons
but the two approaches are complementary

3. Why are outsourcing arrangement so difficult
Major outsourcing contracts cover 8-10 years
Usually the customer gets lump sum cash in the first year.
After 1st year customer gets a monthly bill
In the 1st year the customer gets service very similar to what it was before the assets were transferred.
As the requirements for 2nd year onwards change, negotiations are required to work it out---it can be stressful
For the vendor, a big cash outflow takes place in 1st year
Vendor expects profit from 2nd year onwards
But customer may start complaining 2nd year onwards because of the monthly bill and need to rework the contract because of changing requirements
This creates tension
Novice customer may not do a good job of handling this
Handful of vendors who can take large contracts
Not much choice to switch

4. Some of these specialize in niche areas like
Large vendors include
EDS
IBM
COMPUTER SCIENCES CORPORATION
COMPUTER ASSOCIATES
PEROT SYSTEMS
GENERAL DYNAMICS
LOCKHEED MARTIN
Some of these specialize in niche areas like
Government
Chemical industry
Auto industry etc

5. When do benefits of outsourcing outweigh risks
Position on the strategic grid (show figure 9.1)
Development portfolio
Outsource if high %age of IT staff working on maintenance or high-structured (end-products are clearly defined, static, and require no organizational change) projects
High tech, highly structured is a good candidate because
Requires specialized leading-edge technical skills
Large low structured projects not good candidate because:
These require high degree of coordination
Design is iterative so require lots of coordination
End outputs evolve as make progress on the project
Organizational learning
Some IT projects underway require BPE resulting in layoffs
These are not good projects for outsourcing as it adds to tension

6. Firms position in the market
Firms lagging their peers in IT architecture, IT leadership, staff skills can do a quick catch up by outsourcing
Current IT organization
Segregated or decentralized IT department is a good candidate for outsourcing
It has fewer issues that need to be resolved with the vendor
Has few integration problems
Assuming in the above situations that the customer does not want to integrate the organization