556 Part IV • The Information Management System
frustrating. For example, setting a 10:00 a.m. meeting in a
Seattle corporate headquarters translates to 10:30 p.m. in
the New Delhi office and 4:00 a.m. in Sydney, Australia.
To deal with the problem fairly and avoid resentment in
foreign offices, meeting times are sometimes rotated
through time zones, alternating between the local workday
times of the foreign and domestic offices.
Special Issue: Managing IT Outsourcing
The potential advantages of IT outsourcing for U.S.-based
firms first received a lot of attention when Kodak announced
major outsourcing contracts with three different vendors in
- The second major catalyst for increased IT outsourc-
ing occurred almost one decade later when the combination
of Y2K compliance and e-business IT demands exceeded
company-specific resources and indeed the domestic IT
workforce supply. Organizations with higher labor costs
have increasingly looked beyond their own national borders
for suppliers with lower costs, and IS leaders in developed
countries are doing the same: outsourcing IT work to take
advantage of offshore labor pools.
However, financial benefits are not the only reasons
that companies choose to outsource. Some firms find it dif-
ficult to keep up with the latest technologies for both IT
service delivery and software application development.
Other benefits include increased flexibility to respond to
business restructurings (e.g., mergers, smaller acquisitions,
divestitures). With these types of business restructurings,
as well as unanticipated economic downturns, come sud-
den shifts in demands for computing power or systems
integration work, and an outsourcing vendor may be in a
better position to increase or decrease support. However,
the outsourcing contract needs to be written so that it
accommodates this type of growth or downsizing in the
business without substantial re-negotiations with the ven-
dor. (For an example, see the case study “IT Infrastructure
Outsourcing at Schaeffer (B): Managing the Contract.”)
Outsourcing at least a portion of IT activities could also be
motivated by a lack of satisfaction on the part of key busi-
ness managers with IT service delivery or application
development by an in-house IS department.
Some outsourcing vendors specialize in IT service
delivery or IT applications development and maintenance,
and some major vendors provide both types of services.
OUTSOURCING IT SERVICE DELIVERY With the cost-
cutting emphasis in business in recent years, there has been
a renewed interest in outsourcing data center operations
(sometimes called IS facilities management). When data
centers are outsourced, it is also common to outsource the
management of data networks and telecommunications, as
well as the IT help desk. The most common benefit associ-
ated with this type of IT infrastructure outsourcing is cost
savings, and some companies have reported 10 to 20 per-
cent cost savings due to the economies of scale available to
the vendor that could not be achieved by the client organi-
zation alone. There are also other potential benefits to
outsourcing IT service delivery activities, including lever-
aging the expertise and presence of a major multinational
service provider. In other words, an outsourcer who
already operates in geographies that the client company is,
or intends to expand to, may provide not only the needed
equipment and skills at a lower cost but also provide
valued knowledge about operating in a specific world
region—including country-specific regulations for trans-
border data flows that exist in Europe.
Outsourcing contracts for managing computer
processing and communications networks for larger
organizations are typically multiyear contracts—
spanning five, seven, or even ten years. Because of the
complexity of the outsourced activities, security concerns
about the organizational data and processing being
managed, and the time length of these outsourcing
arrangements, entering into such a contract typically
requires many months of preparation and contract negoti-
ations under the purview of an organization’s legal
department and procurement specialists. Organizations
that initially engage in infrastructure outsourcing con-
tracts without a good knowledge of their own IT costs
and resource strengths risk spending more, and incurring
more delays in initiating these types of arrangements.
Once IT service delivery is outsourced, it’s also hard
to bring it back in-house. It’s therefore important for
organizations to carefully assess the potential costs and
benefits of nothaving internal IS personnel.OUTSOURCING IT APPLICATION PROJECTS Beginning
with the Y2K compliance work in the late 1990s, many
firms also began to increase their usage of external
service providers for application development work. Here
the primary benefit may be cost, if there is a labor market
difference between the contracted workers and the
in-house staff. However, there are also other benefits,
including access to specific IT skill sets (e.g., skills with
newer technologies) or improved productivity tools,
as well as the ability to hire specialists for a short time
period during the life of a project rather than for perma-
nent positions.
More recently, some vendors have offered another
sourcing alternative: not only hiring their firms to configure
a given software package but also to host the applications
on the vendor’s computers. These application service