As the outsourcing trend gains momentum, it is prudent to stop and reflect on several poignant questions: What are organizational members' intentions for evaluating outsourcing decisions? What problems are they attempting to solve with outsourcing? Do vendors really provide solutions to these problems? In this book, we describe a research project whose purpose was to explore questions such as these by investigating the information systems outsourcing phenomenon from individuals who have already gone through the evaluation process. Through a series of in-depth interviews with participants in thirteen companies who have gone through formal IS outsourcing evaluations, many insights were gained about the intentions, motivations and consequences of information systems outsourcing. The following four seem particularly cogent.
First, organizational members may initiate outsourcing for reasons other than cost efficiency. Participants identified a variety of motives for initiating outsourcing decisions: react to the efficiency imperative, acquire or justify additional resources, react to the positive outsourcing media reports, reduce uncertainty, eliminate a burdensome function and enhance personal credibility.
Second, an outsourcing vendor may not be inherently more efficient than an internal IS department. The theory of economies of scale states that large sized companies achieve lower average costs than small sized companies due to mass production and labor specialization efficiencies. In the outsourcing arena, however, the applicability of the economies of scale model may be challenged. Small shops may obtain lower costs per MIP than large shops by employing older technology, offering below market wages, and maintaining tight controls and procedures. A vendor's hardware discounts, in many cases, are insignificant when compared with the discounts available to the potential outsourced company. Changes in software licensing agreements diminish a vendor's advantage. Labor expertise is largely a myth since clients are usually supported by the same staff that transitioned to the vendor.
Third, the internal IS department may be able to achieve similar results without vendor assistance. When vendors submit bids that indicate savings, companies may question whether they can achieve similar results without vendor assistance. Perhaps the company can reduce their own IS expenses through data center consolidation, resource optimization, chargeback implementation, and other sundry methods.
Fourth, if a company decides to outsource, the contract is the only mechanism to ensure that expectations are realized. When some companies decide that outsourcing is the preferred mechanism for achieving IS objectives, they often like to view their vendors as partners. This assumption, however, is flawed: vendors are not partners because profit motives are not shared. An outsourcing contract is the only way to ensure an equitable balance of power. Service level measures, provisions for growth, and penalties for non-performance must be stipulated prior to outsourcing commencement.
In this book, we describe in some detail how these four conclusions have been reached, as well as other lessons and recommendations which emerge from our analysis of the thirteen case studies. We note that under specific circumstances, such as when companies cannot control IS costs on their own or need to sell IS assets to generate cash, it may well be appropriate for companies to outsource. If so, to ensure that outsourcing expectations are realized it is prudent that organizations follow the stringent contract negotiation strategies presented in this book.
Subsequent to the publishing of this book, Mary and I wrote a second book on the subject entitled Beyond the Information Systems Outsourcing Bandwagon: The Insourcing Response published by John Wiley & Sons, in August 1995.
