IT Operations Outsourcing:

IT operations and support organizations are often viewed as overhead that

provides commodity functions which can be easily and safely outsourced.
However, IT operations and support functions can be strategic capabilities,
because flexible, stable and reliable operations are the foundation of an
enterprise's applications and business processes. IT operations outsourcing
proposals are often evaluated and executed with minimal involvement from the
IT operations group. The result may be an agreement that does not define the
full set of services required, does not result in expected cost savings, and
requires the retention of significant numbers of internal staff members to close
service gaps and watch the outsourcer.

There are also many cases where an external service provider has
capabilities that an enterprise doesn't have, or it has economies of scale that an
enterprise cannot achieve. In these cases, it makes a lot of sense to outsource
selectively.

Core Functions of Outsourcing Technology:

1. The IT Operations Group's Role in Outsourcing:

The IT operations group needs to position internal services with respect to

outsourcing alternatives. Selective outsourcing may improve internal services
and reduce costs.

2. Positioning IT Operations as the Preferred Service Provider:

The internal IT operations group can solidify its position as the preferred service
provider by defining current services, developing granular cost information and
leveraging its potential for customer intimacy.

3. Credibility of IT Operations Begins With Quality of Service:

Often, the business units do not understand the demands placed on the IT
operations group. To close this gap and ensure a strong partnership with the
business units, the IT operations group must first improve its quality of service.

4. Benefits and Risks of Desktop Management Outsourcing:

Desktop management outsourcing can be used selectively to improve services or
reduce costs; however, it is not an escape from the costs and consequences of
an unstructured environment.

5. The High Rewards and Low Risks of Selective Outsourcing

When time, money or expertise is missing, selective outsourcing can enable the
IT operations group to keep IS an operations service up-to-date and efficient. If
leveraged properly, several IT services can deliver high rewards.

6. Plan an Exit Strategy before Signing Outsourcing Contracts:

Enterprises considering management service providers for network, systems,

applications, storage or e-business management must include early termination
clauses in their outsourcing contracts.

7. Develop IT Processes before Outsourcing:

Integrating an external service provider into the IT infrastructure requires

significant work by the IT operations group before outsourcing. Enterprises
should develop IT processes as a precursor to any outsourcing arrangement.
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OUTSOURCING:
Outsourcing is subcontracting a process, such as product design
or manufacturing, to a third-party company.[1] The decision to outsource is often
made in the interest of lowering cost or making better use of time and
energy costs, redirecting or conserving energy directed at the competencies of a
particular business, or to make more efficient use of land, labor, capital,
(information) technology and resources Outsourcing became part of the business
lexicon during the 1980s. It is essentially a division of labour

Activities for outsourcing Research &

Development:

The competitive pressures on firms to bring out new products at an ever rapid
pace to meet market needs are increasing. As such, the pressures on the R&D
department are increasing. In order to alleviate the pressure, firms have to
either increase R&D budgets or find ways to utilize the resources in a more
productive way. There are situations when a firm may consider outsourcing some
of its R&D work to a contract research organizations or universities. Reasons why
a firm could consider outsourcing are:-

 NEW PRODUCT DESIGN DOES NOT WORK

 PROJECT TIME AND COST OVERRUNS

 LOSS OF KEY STAFF

 COMPETITIVE RESPONSE

 PROBLEMS OF QUALITY/YIELD.

The key drivers for R&D outsourcing are emerging mass markets and availability
of expertise in the field. In this context, the two most populous countries in the
world, China and India, provide huge pools from which to find talent. Both
countries produce over 200,000 engineers and science graduates each year.
Moreover both countries are low cost sourcing countries. Other strategic drivers
for outsourcing R&D are access to expertise and intellectual property, filling gaps
in the capabilities of the R&D function, managing risk better, reducing the time
to market, and focusing on the core competence or activities of the firm.

Reasons for outsourcing:

Organizations that outsource are seeking to realize benefits or address the
following issues-

Cost savings.

The lowering of the overall cost of the service to the business. This will involve
reducing the scope, defining quality levels, re-pricing, re-negotiation, cost re-
structuring. Access to lower cost economies through offshoring called "labor
arbitrage" generated by the wage gap between industrialized and developing
nations.

1. Focus on Core Business:

Resources (for example investment, people, and infrastructure) are focused on

developing the core business. For example often organizations outsource their IT
support to specialized IT services companies.

2. Cost restructuring.

Operating leverage is a measure that compares fixed costs to variable costs.

Outsourcing changes the balance of this ratio by offering a move from fixed to
variable cost and also by making variable costs more predictable.

3. Improve quality:

Achieve a step change in quality through contracting out the service with a new
service level agreement.
4. Knowledge:

Access to intellectual property and wider experience and knowledge.

5. Contract:

Services will be provided to a legally binding contract with financial penalties and
legal redress. This is not the case with internal services.

6. Operational expertise:

Access to operational best practice that would be too difficult or time consuming
to develop in-house.

Access to talent:

Access to a larger talent pool and a sustainable source of skills, in particular in

science and engineering.

Capacity management:

An improved method of capacity management of services and technology where

the risk in providing the excess capacity is borne by the supplier.

Catalyst for change:

An organization can use an outsourcing agreement as a catalyst for major step

change that can not be achieved alone. The outsourcer becomes a Change
agent in the process.

Enhance capacity for innovation:

Companies increasingly use external knowledge service providers to supplement

limited in-house capacity for product innovation.

Educe time to market:

The acceleration of the development or production of a product through the

additional capability brought by the supplier.

COM modification:

The trend of standardizing business processes, IT Services and application

services enabling businesses to intelligently buy at the right price. Allows a wide
range of businesses access to services previously only available to large
corporations.

Risk management:

An approach to risk management for some types of risks is to partner with an

outsourcer who is better able to provide the mitigation.

Venture Capital:

Some countries match government funds venture capital with private venture
capital for startups that start businesses in their country.

Tax Benefit:

Countries offer tax incentives to move manufacturing operations to counter high

corporate taxes within another country

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