Outsourcing – a critical option for IT.

(by H Rubijanto)

Recently, outsourcing of information technology has become a familiar option in the 2000’s. Generally, IT outsourcing means the process of entrusting part or all of IT operations of the whole business activities to an outside vendor and shift the burden of information system activities onto someone else’s shoulders and keep it run more efficiently. Many parts of companies criticized in-house IT as being too expensive and not responsive enough to their needs. It might be that in-house IT could be inspired to provide higher quality service by being placed into competition with outside vendors.

Intensive competition
But the world of business is launching a dramatic shift with a significant increase its intensive competition what might be called “global competition” which has destabilized companies and even whole industries. It is pushing more organizations to pay better attention to changing consumer preferences and new technological development, and then to adapt, innovate to the new and more efficient product process of manufacturing operations.Dealing with the typical management challenges created by competitive intensity, getting costs down, increasing productivity, improving customer service, keeping quality high, getting new products developed faster, is rarely easy.

IT management needs to operate in the many new extended network and alliance structures. These have emerged in order to adopt new competitive approaches and because the technology requirements of many products and services exeed the competencies of any one organization. The organization challenge here is to find a common purpose, to derive common strategies and to engage in common action. This often means recognizing segments of customer opportunity and mobilizing the different players in a loose network of organizational alliances to seize that opportunity. Technology’s impact used to be limited mainly to product improvement and manufacturing process improvement. It was concentrated in the high technology sectors of the economy. While even smaller companies leaders could not ignore technology, it seemed posible to them to manage it through others with more technical competence.

The emergence of a new phase
In the period over the year 2000, a number of important changes are taking place that mark the emergence of a new phase in the history of information technology:
- digital systems are appearing, based on new technology that can access multimedia information stored on a CD-ROM.
- new machines and upgrade kits are being launched on the market, based on the specification for the Multimedia PC backed by microsoft and a consortium of other vendors.
- International compression standards are emerging that will boost the development of a mass market for video processors in the same way that standards such as the GroupIII fax standard did for the image processing market.
- The implementation of Local Area Network (LAN) and Wide Area Network (WAN) using distributed high capacity servers links many terminal users more effectively.
- CDMA generation makes cellular phone become more popular in business or individual comunication, even using multimedia features.
As the result of these changes a rapid and significant reduction in the cost delivery platforms occurred during that period.

Critical nature of contract negotiations
In case outsourcing is seriously preffered, often the first thing discovered is the delicate and critical nature of contract negotiations. The outsourcing partner will want to strike a contract with the company that will last at least five years. Given the rapid changing nature of IT, changing economic conditions, and the possibility that the companies strategies be much different to response new customer behavior and new business paradigm, the prospect of signing more than three years contract for IT oursourcing might seem too bold a venture. Be aware of your IT strategy or policy, it will be Core or Supported competence. The timeframes and milestones should be agreed after considering all possible changing enviroments being taken into account.

The outsourcing partner is sometimes referred to as an important fellow that you must be willing to let in close to your company. The changing in your business management strategies and policies will make unfavorable situation to the programs of information system being set up. Any renegotiations happened frequently in a such partnership is usually most unpleasant.
Another problem might be arise is the potential conflict of in house IT activities. Normally, the outsourcing vendor will agree to utilize the capability of your IT staff to continue the run of your operations. This at first seems like an excellent arrangement in case the fee-compensations for them is included in desired contract negotiations.