IS Outsourcing:

Through external procurement, the organization purchases only a single system from an external vendor. In outsourcing, the organization gives away or outsources the responsibility of developing an IS to an outside company. In an outsourcing arrangement:

• The outside company develops the information systems and keeps them within its facility, or
• The outside company runs the applications of the organization on their computers, or
• The outside company develops information systems to run on existing computers within the organization.

Outsourcing gives organizations the freedom to concentrate more on the key focus areas that are critical for achieving a competitive advantage over others in the market. An organization may opt for outsourcing for some or all of the following reasons:

• Concerns over the cost and quality aspects
• Problems faced due to internal IS staff performance
• Pressures faced by the suppliers
• Concentration on the core competencies
• Opting for downsizing and reengineering the processes
• Financial factors
• Problems due to organization cultural changes
• Conflicts between the internal IS staff and the end users

Types of outsourcing relationships

Rather than entering into a legal contract with their outsourcing vendors that would be binding on both parties for a fixed period of time, organizations sometimes prefer entering into a relationship that would benefit both the parties and last for a longer time. In this kind of relationship, both the parties have a direct as well as an equal stake in the success of the other party. On the other hand, there are other types of outsourcing relationships which stress the fact that not all outsourcing relationships need to be structured the same way. In reality, three different types of outsourcing relationships can be identified between the buyer and the outsourcing vendor. They are:

Basic outsourcing relationship: In this relationship, the organization buys the products or services of the outsourcing vendor considering the price and convenience factors. It is also called a cash and carry relationship.

Preferred outsourcing relationship: In this relationship, the buyer and the vendor lay down preferences and prices which would benefit each other. For instance, a vendor would consider giving discounts to those customers who go in for a huge volume of business.

Strategic outsourcing relationship: In this relationship, both the buyer and the seller share the risks and rewards equally. Very few organizations go in for these kinds of relationships.

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