IS Outsourcing

There are five forms of IT sourcing: (a) insourcing, (b) selective sourcing, (c) strategic alliance sourcing, (d) outsourcing, and (e) off-shore outsourcing. While the insourcing relies on in-house resources, the three types of outsourcing use resources external to the organization. Selective and strategic alliance sourcing are established on multiple suppliers and on joint venture partners respectively. While outsourcing predominantly uses resources external to the organization at a local or regional level, offshore outsourcing implies delegation of the selected business operations to an offshore location outside the country.

Information systems (IS) outsourcing (especially its off-shoring aspect) as a special type of outsourcing began early in 1990s as a way to supplement in-house IT development activities. IS outsourcing became a growing economic phenomenon worldwide because of (a) the development of IT-related infrastructures in developing countries, (b) a surging demand for IT specialists in developed world, and (c) availability of a highly skilled pool of personnel in the developing world at a reasonable cost. Organizations that outsource their activities are expecting the followings benefits: (a) cost savings; (b) increased rate of returns on investments, and, (c) improved access to best practices in IT design, implementation and operations.

The IS offshore outsourcing has some pitfalls if not well plan and implement in both sides: client-side, vendor-side and client-vendor relationship problems. In addition to the problems mentioned, the three potential concerns related to privacy in information security raised by off-shoring data processing are related to legal aspects, information security, and vendor reliability and dependability.

To avoid all those issues, IS managers should know what, when, and how to outsource. They should be aware of the leadership decision-making regarding outsourcing and offshoring. In 1960, Simon published what must be one of the better-known models in the management literature, his model of decision-making. According to Simon, there are four different stages in decision-making: intelligence, design, choice, and implementation. Whilst Simon’s model is a general model of decision making, some scholars proposed an adapted framework that parallels the decision-making process an organization supposedly goes through when evaluating its sourcing options and subsequent outcomes. They model had two phases: (a) decision process (three phases of Simon model: why, what, which) and (b) implementation (how, outcomes).