Faced with information services (IS) budgets that have become moving targets, top executives now are asking for more accountability in how those investments are measured. That is one of the key components in the growth of outsourcing, according to Medhi Khosrowpour, professor of information systems at Pennsylvania State University.
Khosrowpour, whose research work has been centered on the managerial and human side of information technology (IT) outsourcing, is editor-in-charge of Information Resources Management Journal and editor of Information Management and Annals of Cases on Information Technology Applications and Management, all published by Idea Group Publishing. He also is the editor of Managing Information Technology Investments with Outsourcing and author of numerous other books and journal articles. He holds a doctorate in business administration degree.
The traditional view of IT resources has been that of providing support for other internal resources or functional areas of an organization. IT professionals have lacked understanding of how to measure returns on IT investments in their organizations, and that situation has been one of the driving forces in the growth of outsourcing, according to Khosrowpour.
“As the size of the IS budgets grew, more and more top executives started asking for more accountability in how IS investments can be measured, and that’s one of the areas where there’s not even much literature,” he said. “We’ve been so consumed by the phenomenal growth of hardware and software technology that we have not spent enough time or focus on the managerial and organizational aspects of information technology in organizations.”
The Outsourcing Alternative
Outsourcing has provided an alternative in many organizations to deliver not only accountability but control over the amounts invested in IT.
“The IS budget is always like a moving target,” he said. “It is always exceeding the planned amount. In the case of outsourcing, organizations can perhaps count on what was promised to them in the beginning, in terms of cost.”
Khosrowpour noted that outsourcing is not a new concept. “It has been done for† many years in other disciplines, as well as in information technology,” he said. “In the old days, we used to refer to this concept of outsourcing as data processing bureaus, who were people who’d subcontract some of the information applications such as payroll processing. Now it is done in a more sophisticated and systematic fashion.”
Exploding the Misperceptions
While this new approach positions the practice as a managerial tool, some misperceptions to outsourcing can be stumbling blocks to its effectiveness, according to Khosrowpour. Some IS professionals, for example, view outsourcing as losing full control over the information technology processes. Some believe that outsourcing automatically means the complete transfer of all information technology, processing and management to an outside vendor. Neither of those assumptions is based on fact.
“Many organizations today are using outsourcing to handle part or parts of their information technology applications, rather than having their entire information department or division handled by outsourcing vendors,” said Khosrowpour. “Outsourcing can be viewed in such a way that it can reduce overload, as well as bring expertise where investment in that expertise can be very expensive.”
The Importance of Fair Evaluation
When approaching outsourcing as a managerial tool, Khosrowpour said, organizations should be aware of two things: outsourcing is not always the solution for every organization, and outsourcing should be evaluated fairly.
“Organizations should look at outsourcing options in a very unbiased fashion,” said Khosrowpour. “They should look to see what outsourcing can offer to their particular organization, rather than concluding that since outsourcing is not suitable for XYZ organization, then obviously it’s not suitable for their organization.”
Misconceptions also revolve around cost, with some IS professionals believing that outsourcing costs too much. That, too, should be evaluated fairly, according to Khosrowpour.
“In many ways, the number one attractive point for top management is cost savings,” he said. “Outsourcing allows the organization to share the cost of emerging information technology, both in terms of hardware and software. An outsourcing vendor can invest more than a single organization in newer technology and new applications. That investment can be transferred to multiple organizations at a fraction of what it would cost individual organizations.”
The Role of the In-House Pros
Khosrowpour believes that it is crucial that the organization’s IS professionals be involved in the earliest stages of the decision-making process.
“It is much more helpful if the IS personnel are made aware of why the organization is looking into outsourcing as an alternative and what tasks could be considered to be outsourced,” he said. “Seek their input, make them directly involved in the whole decision-making process, rather than keeping everything a secret and allowing the IS professionals to rely on rumors about what the organization is going to do in regard to outsourcing.”
Tension between the organization’s IS personnel and members of the vendor team is inevitable in the early stages, according to Khosrowpour. Management can help alleviate that situation.
“It is realistic to understand that IS professionals in the organization will look at the vendor personnel as outsiders intruding into their territories,” said Khosrowpour. “It is important for management to understand this phenomenon and to be directly involved in defusing some of this tension and helping both sides to work with each other to achieve their ultimate goal.”
Management also should be directly involved during implementation to ensure that the vendor delivers what was promised. “Many vendors, up front, will promise heaven and everything to an organization,” said Khosrowpour, “but during implementation, they might not carry out all the promises they made.”
Despite the challenges, Khosrowpour stressed that outsourcing can be an effective managerial tool. “If it is looked at positively, planned for carefully, and during implementation, is monitored and supervised effectively, outsourcing can be a tremendous help in managing information technology.”
Lessons from the Outsourcing Primer
- Outsourcing can deliver accountability and budget control.
- Misperceptions about the scope and cost of outsourcing can be stumbling blocks to its effectiveness
- Fair evaluation is essential when considering outsourcing.
- Internal IS professionals should be involved in the early stages of the decision-making process.
- Management should be directly involved in defusing tensions between the in-house professionals and the vendor personnel in the early stages of implementation.
Khosrowpour has two edited books, published by Idea Group Publishing:
Information Systems Outsourcing Decision-Making: Managerial Approach
ISBN: 1-878289-20-9, 344 pages (h/c), Copyright 1994, Price: US$ 59.95, Published by Idea Group Publishing, Hershey, PA (1-800-345-4332)