Strategic IT Outsourcing and Quality Management
Outsourcing Information Systems (IS)
If a firm chooses not to use its internal resources to build and operate information systems, it can hire an external organization specializing in providing these services. The process of turning over an organization’s computer central operations, telecommunications networks, or applications development to external vendors is called outsourcing.
Outsourcing information systems is not a new phenomenon. Outsourcing options have existed since the dawn of data processing. As early as 1963, Perot’s Electronic Data Systems (EDS) handled data processing services for Frito-Lay and Blue Cross. Activities such as software programming, operation of large computers, time-sharing, and the purchase of packaged software have, to some extent, been outsourced since the 1960s.
Advantages and Disadvantages of Outsourcing IS
Outsourcing is becoming popular because many organizations perceive it as being more cost-effective than maintaining their own computer center and information systems staff. Providers of outsourcing services benefit from economies of scale (the same knowledge, skills, and capacity can be shared with many different customers) and are likely to charge competitive prices for IS services. Outsourcing allows a company with fluctuating needs for computer processing to pay only for what it uses rather than building an internal computer center that stands underutilized during non-peak loads.
Key Advantages of Outsourcing
- Economy: Outsourcing vendors are specialists. Through specialization and economies of scale, they can deliver the same service and value for less money than the cost of an internal organization.
- Service Quality: Because outsourcing vendors risk losing clients if service is unsatisfactory, companies often have more leverage over external vendors than over their own employees.
- Predictability: An outsourcing contract with a fixed price for a specified level of service reduces cost uncertainty.
- Flexibility: Business growth can be accommodated without making major changes to the organization’s information systems infrastructure. Outsourcing may provide superior control because costs and capabilities can be adjusted to meet changing needs as information technology permeates the entire value chain.
- Making Fixed Costs Variable: Some outsourcing agreements (e.g., running payroll) are based on the price per unit of work done. Clients only pay for the amount of services they consume, as opposed to paying a fixed cost to maintain internal systems that are not fully utilized.
- Freeing up Resources: Scarce and costly talent within an organization can refocus on activities with higher value and payback than they would find in running a technology factory. This frees up both human resources and financial capital.
Disadvantages and Risks of Outsourcing
Not all organizations obtain these benefits. There are inherent dangers in placing information systems functions outside the organization, including loss of control, vulnerability of strategic information, and dependence on the fortunes of an external firm.
- Loss of Control: The organization loses direct control over critical IT functions.
- Vulnerability of Strategic Information: Sensitive data is entrusted to an external party.
- Dependency: The firm becomes dependent on the viability of the vendor. A vendor facing financial problems or deteriorating services may create severe issues for its clients.
Information Systems Contribution to Total Quality Management (TQM)
Information systems fill a special role in corporate quality programs for a number of reasons. First, IS is deeply involved with the daily work of other departments throughout the organization.
IS analysts usually take a leading role in designing, developing, and supporting varied departmental systems, such as corporate payrolls, patent research systems, chemical process control systems, logistics systems, and sales support systems. IS professionals also maintain their knowledge of these departments through participation in departmental information planning.
IS personnel are usually key to the sharing of data between departments because they have unique knowledge of the relationships between various functions. Often, only IS personnel know where certain data originate, how other departments use and store them, and which other functions would benefit from having access to them. With this broad understanding of the functional integration of the corporation, IS personnel can be valuable members of any quality project team.
Critical Skills of IS Staff for Quality Programs
The IS staff in effective information systems departments possess three skills critical to the success of a quality program:
- They are specialists in analyzing and redesigning business processes.
- Many IS technicians are experienced in quantifying and measuring procedures and critical activities in any process.
- IS departments have long been involved with measurements of their own management training, which includes the use of project management software. These skills contribute a great deal to any serious quality program, which is normally organized as a project and is usually heavily task-oriented.