The Pros and Cons of IT Outsourcing

Abstract

As companies rely more on information technology (IT) to conduct business for example, accessing large market research databases to find new customers and using the Internet as a storefront IT development and maintenance costs have exploded. It is easy to understand, therefore why companies consider transferring IT assets, leases and staff to third-party vendors that promise savings without losing ground to the competition. In one of the largest U.S. outsourcing ventures, DuPont hired Computer Science Corp. (CSC) and Andersen Consulting for $4 billion over a 10-year period to develop and manage its IT. Other landmark IT deals include Xerox's $3 billion deal with EDS and the McDonnell Douglas $3 billion deal with ISSC. But this is not simply a big company trend. Smaller companies also are taking advantage of outsourcing's benefits, often contracting out portions of their IT to industry-specific consultants or facilities management companies. For example, short-term contract specialists, such as Users Inc., cater to the credit union industry. Smaller companies also outsource IT maintenance functions, such as help desk and training departments. CPAs in public practice and industry, heavy IT users, are increasingly involved in the design, control and operation of information systems for their clients and companies. Therefore, they have to stay on top of these out-sourcing trends. However, it is crucial that they stop and reflect on several important questions before they recommend that their companies or clients hire third-party vendors: What problems will outsourcing solve? Will a vendor really save them money? What are the risks? Whether you are an IT outsourcing expert or simply considering the option for your client or company, you will benefit from this look at the pros and cons of IT outsourcing. WHAT IS OUTSOURCING REALLY? Today, IT outsourcing generally is defined as contracting with outside vendors to do various IT functions such as data entry, data center operations, application maintenance and development, disaster recovery and network management and operations. Vendors may be individual IT professionals, consulting firms, employee leasing companies, fullservice providers and CPA firms. BENEFITS CHECK What are the advantages and disadvantages of looking outside the company to manage and support IT? Outsourcing proponents cite several reasons for choosing outside vendors. Access to state-of-the-art technology. The volatility of information technology can quickly make IT skills obsolete. Software is updated and replaced very rapidly--by the time an entity invests in and trains its full-time staff, the technology may no longer be state-of-the-art. Outsourcing specialists must be well trained and up-to-date to survive. Cost savings and quality. Fierce competition has led many businesses to restructure and downsize staffs in an effort to save money. As in the case of General Electric, even thriving companies do whatever possible to reduce staff and costs. Vendors may save money because they * Have much tighter control of fringe benefits and run much leaner overhead structures. * Use low-cost labor pools more aggressively and, with the help of modern telecommunications, can move data centers to low-cost areas. * Apply world-class standards to the company's existing IT staff, all of whom have to requalify for appointment at the time of outsourcing. * Can employ more effective bulk purchasing and leasing arrangements for all hardware and software. * Have better control over software licenses because they often are more informed negotiators. * Must meet deadlines because of contractual pressures. Flexibility. Companies must be flexible enough to adapt to a business environment in constant flux, so their IT functions have to respond quickly to changing demands. …

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