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What is IT Outsourcing?

November 20, 2012

What is IT Outsourcing? What is IT Outsourcing?

what is IT outsourcingHow to save money and provide the competitiveness of the company? These are two questions that every business owner looks answers for. IT outsourcing is very effective for such a task. Let’s find out what is IT outsourcing and why is it really so profitable?

IT outsourcing is a partial or full transfer of business processes or non-core functions to a third-party service provider in the IT sphere.

At first glance, the concept of IT outsourcing seems to be quite new. But it’s history goes back a lot further than you may think. IT outsourcing was used in the late 50’s, when just the first computers appeared. The cost of data processing was rather expensive at that time.

There are two types of outsourcing: external and internal. The main difference between them is the territory, defined by where the outsourced work happens. An internal outsourcing is rendering of services on the customer’s territory. When the vendor company handles all aspects of the businesses on their territory, it is about an external outsourcing. The choice of the specific type of outsourcing depends on the customer’s needs.

There are three main cooperation models that are typical for outsourcing: Fixed Price, Time and Materials and Dedicated Team.

  1. Fixed Price. This is the most popular cooperation model. All the requirements, details of the development and the price are agreed before any work starts. The customer knows the fixed price and the ending time of the project. The drawback of this model is unexpected problems that may arise due to objective reasons during the project’s implementation. In order to avoid the risks, the customer should think over the whole application functionality in detail.
  2. Time and Materials. Unlike the previous model of cooperation, there is no exact cost of the project. The work goes stage by stage and it is paid according to the time spent and the specified hourly rates of the specialists. Time and Materials model becomes an attractive option as the specification, project’s conditions and priorities can be changed. The customer and the service provider are in close contact with each other. Under this model you have the advantage to control the whole process of project’s implementation personally.
  3. Dedicated Team. This model of cooperation is a perfect solution for long-term projects. The outsourcing company allocates a certain number of IT specialists for the work on a particular project. It means these specialists work only for the client and do not take part in other projects.

The number of companies that start IT outsourcing business operations increases day by day. The IT outsourcing popularity is growing in global business. Let us consider all the pros and cons at greater length. Drawbacks:

  •     Possible loss of control
  •     Quality problems
  •     Threat to data loss
  •     Tied to the service provider
  •     Culture clash (between the service provider and a customer)
  •     Unexpected costs.

IT outsourcing benefits are:

  •     Time, money savings
  •     Transparent costs
  •     Focus on core business
  •     Access to world-class technology, introduction of innovations
  •     High-quality service
  •     Data security

All in all, IT outsourcing is a complex business process. It contains both the potential risks and significant advantages. Today it is hard to find a company that does not let a third-party service provider handle part of their business. The outcome may differ, depending on the purpose, but one can be said for sure: IT outsourcing helps companies to generate better revenue as well as offers of high-quality services. Still doubting? Don’t! Just try it and enjoy the results.