IT outsourcing strategy

An information technology (IT) outsourcing strategy is a plan derived from assessing which IT functions are better performed by an IT outsourcing service provider than by an organization's internal IT department.

An IT outsourcing strategy can require input from many departments, including operations, legal, supply chain and human resources. The responsibility for the outcome of an IT outsourcing strategy, however, usually lies with the organization's chief information officer (CIO).

For many organizations, the goal of an IT outsourcing strategy is to provide the best possible technology to the organization at the lowest possible cost. What constitutes the best possible technology and lowest cost, however, tends to be fluid due to rapidly evolving technologies and market volatility.

Cost savings, however, is not the only aim of an IT outsourcing strategy. Some organizations looking for business transformation rely on outsourcing providers to help them through the process. Even on this front, IT outsourcing strategy is changing. Whereas in the past organizations often used one large IT service provider to handle the entire project, outsourcing strategists today recommend taking a multi-vendor approach.

Economic downturns sharpen the need to reduce IT costs and also shake up traditional IT outsourcing delivery models. The tech bust of 2001 to 2003, for example, increased the adoption of offshoring, that is, the export of IT work to places such as India, where labor is significantly cheaper than in developed markets, such as the United States and Western Europe. Much of the work initially sent offshore was considered rote, requiring low-level IT skills that were easily taught. As demand for offshore outsourcing grew, so did the maturity of offshore providers, requiring IT outsourcing strategists to continually reassess which IT work is suitable to send offshore.

The recession of 2008-09 also affected IT outsourcing strategy. The acute need to cut IT costs at many organizations spurred interest in the potential cost-savings promised by cloud computing, generally defined as the on-demand delivery of computing services as well as infrastructure over the Internet, on a pay-per-use basis. The ability of employees, including non-IT personnel, to procure technology without going through IT departments can undermine, or at a minimum, complicate an IT outsourcing strategy. In addition, the cost-benefit analysis for outsourcing IT functions can be confusing when the outsourced technology or service is billed on a fluid pay-per-use basis. 

See also: business process outsourcing, domestic outsourcing


This was last updated in September 2011

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