Technology and Engineering in Organization: IT Outsourcing and Off-shoring

Introduction

The emergence of the web 2.0 paradigm opened the floodgates for Information Technology (IT) business outsourcing and off-shoring (Garner, 2004). Since then, outsourcing has developed mainly due to changes in the market and industry conditions, and the business cycles have experienced a common boost in outsourcing of information processes. The needs and expectations of customers in different markets are becoming more specific and highly demanding on businesses. This increase derives from the need to constantly generate value and develop a competitive advantage, leading to a general appreciation of outsourcing as a cost-cutting strategy to ensure professionalism in the delivery of products and services (Jae-Nam, 2008).

Further, IT outsourcing results in the transformation of business fixed costs into variable costs, which contribute into an organization’s management of its costs structure and capability to manage its marginal returns (Lall & Narula, 2004). By managing variable costs, Cuadros, Orts and Alguacil (2004) claim, an organization reduces opportunities for investing in assets that provide the potential to respond to market changes in a timely fashion. Hence, the business can focus on managing its core competencies and capability to sustain its competitive advantage in a competitive market (Willcocks & Feeny, 2006). Researchers have determined that investment in IT outsourcing by an organization makes it possible for employees to reflect on a rationale for restructuring, redesigning and developing business core competencies (Adeleye et al., 2004). Examples of such activity might include: customer engagement, development of customer relationships, and improvement of business operational processes towards increasing customer interactivity and sustainable customer relationships. This forms a basis for building lasting customer loyalty brand engagement and positive customer engagement. The present study examines the cost benefits, performance, and customer relationship improvement, as well as risks that firms face when deciding to outsource or off-shore their IT services (Iacovou & Nakatsu, 2008). This would be with the aim of establishing whether or not outsourcing makes businesses more effective and profitable.

Statement of the Problem

Organizations currently function under increased pressure to improve their performance and gain a competitive advantage along with continuous review of their operations with the aim of addressing threats emanating from changes in the external environment and harnessing opportunities (Mani, Barua, & Whinston, 2010). Various challenges drive firms to IT outsourcing and off-shoring, such as increased operating costs, and a need for innovation and improvement of business processes. Advanced technology and globalization has enhanced the ability to outsource, yet in spite of firms’ ability to outsource, outsourcing and off-shoring involve many challenges that may affect business operations. We know that IT outsourcing has led to the emergence of homogeneous organizations that have equivalent core competencies. This has resulted in a loss of business core competencies through exploitation of best practices in IT competitive advantage (Gibb & Buchanan, 2006). Risks and information insecurity associated with IT outsourcing and off-shoring have increased leading to a loss of customer loyalty. In addition, the fear that IT outsourcing cannot be implemented across continents because of possible data access by unintended users, virus attacks, and lack of device interoperability has increased (Rist, 2008).

In spite of these challenges, outsourcing and off-shoring firms have reported some benefits that result from outsourcing. Outsourcing companies have managed to reduce their operating costs through improved business processes that result in enhanced competitive advantage and performance (Cuadros et al., 2004). Levina and Vaast (2008) note that IT market competitiveness has provided opportunities for firms to improve the quality of provided services through innovations that leave customers satisfied. Customer satisfaction leads to customer loyalty, and increased profitability. This study will use the concepts and the factors of endowment theory while examining the impact of outsourcing and off-shoring on firms.

Purpose of the Study

This quantitative descriptive study is to examine IT outsourcing as applied in multinational corporations. Therefore, the research will seek to establish the relationship between IT outsourcing and business performance relative to operations, cost reduction, and profitability. This would be with the aim of establishing that outsourcing, by keeping the costs of operation reduced, gives companies the opportunity to grow further. As mentioned, IT business outsourcing comes with some generic risks to organizations, and this makes the decision to adopt IT business outsourcing and off-shoring a difficult one. Consequently, this study also expects to determine the risks and security threats firms face when outsourcing or off-shoring. The study will cover current and previous IT consultants in outsourcing and off-shoring, business individuals using outsourcing, and consultants or sellers of technology. The study will use structured questionnaires to acquire direct insight into the advantages and limitations associated with this trend. The importance of administering the questionnaires is to cover a wider scope of contributions to the study (Van den Bergh, 2009).

This study gives light to the importance and downfalls of both outsourcing and off-shoring in information technology. Nevertheless, profit maximization and reduction in costs have stood out; whereby, companies are outsourcing information technology services from other countries with expertise, with an aim of cost reduction. IT services differ among countries and once a company outsources, it gains knowledge on a particular issue; however, the impact of outsourcing and off-shoring should be examined in greater detail.

The framework of this study is derived from the relevant researches and studies on the field of information technology and processes of business outsourcing and off-shoring. Therefore, this study will be based on endowment theory, while determining variables through quantitative analysis.

Research Questions

In this study, two types of quantitative research questions will be employed, descriptive and predictive. Descriptive research questions will be utilized to seek answers pertaining to queries regarding the frequency with which IT outsourcing and off-shoring takes place in businesses. Predictive quantitative research questions can determine whether a variable can be utilized in predicting future results.

Many organizations in the modern business environment have adopted IT business outsourcing and off-shoring. Advances in any technology come with intended purposes as well other side effects. IT business outsourcing and off-shoring may not be left out since its adoption could be associated with gains as well as losses. Therefore, questions such as the ones presented below will be answered in this study.

• RQ1. Does outsource and off-shore IT lead to cost reduction?
• RQ2. Does outsource and offshore IT increase IT risks?
• RQ3. Does IT outsourcing and off-shoring lead to information insecurity?
• RQ4. Does outsourcing and off-shoring lead to poor customer relationships?
• RQ5. Are outsourcing and off-shoring linked to reduced innovation?
• RQ6. Does outsourcing or off-shoring of all IT functions affect the overall performance of the firm?

Hypotheses

• H1₀. There is no statistically significant evidence that organizations achieve their planned cost minimization from IT outsourcing and off-shoring.
• H1_a. There is statistically significant evidence that organizations achieve their planned cost minimization from IT outsourcing and off-shoring.
• H2₀. There is no statistically significant relationship exists between IT outsourcing generic risks and outsourcing including off-shoring.
• H2_a. A statistically significant relationship exists between outsourcing generic risks and IT outsourcing including off-shoring.
• H3₀. There is no statistically significant relationship between IT outsourcing and information insecurity.
• H3_a. A statistically significant relationship exists between IT outsourcing and information insecurity.
• H4₀. Outsourcing, including off-shoring is not the cause of poor customer relationships in outsourcing firms.
• H4_a. Outsourcing, including off-shoring, has a statistically significant relationship with poor customer relationships in outsourcing firms.
• H5₀. There is no statistically significant evidence that outsourcing and off-shoring enhances the efficiency of a firm’s operation through improvement in its innovativeness.
• H5_a. There is statistical significant evidence that outsourcing and off-shoring enhances the efficiency of a firm’s operation through improvement of its innovativeness.
• H6₀. Statistically, IT outsourcing and off-shoring do not relate positively to the performance of an organization.
• H6_a. There is a statistically significant relationship of IT outsourcing.

Operational Definition of Variables

Variables are measurable attributes that assume different values among the subjects under consideration. This study employed both dependent and independent variables. The independent variables are those doctored by the researcher in order to determine their effects on other variables. The dependent variables are those that the researcher measured, predicted or monitored and were generally expected to be affected by the researcher’s manipulation of the independent variables (Lind, Marchal, & Wathen, 2010). Some variables were qualitative (non-numeric, or rather, attributes), while others were quantitative (numeric) and were either discrete or continuous. The following section of this paper briefly identifies and defines the major variables of this study.

Outsourcing and off-shoring

Outsourcing and off-shoring helps the organization reduce operating costs while simultaneously optimizing customer service. Outsourcing was identified on a nominal scale by asking the respondents, “Do you outsource or off-shore any of your operations from another provider?” The responses were labeled as follows: 0 = No, 1 = Yes, and 2 = Partially. The third option was necessary to enable the study to categorize differently the IT firms that were in-between; that is, they were only partially outsourcing or off-shoring. The study intends to identify trends on how the variables of interest changes across these categories of firms. Because the focus of this study is to examine IT outsourcing as applied in multinational corporations, the only firms of interest surveyed were IT related.

Operating costs

These are the expenses incurred by a business venture on a daily basis during its operations; they include administration, sales, and marketing expenses. They do not include depreciation expenses, interest expenses, or income taxes. The data sources used are obtained from the income statements of the different companies. Operating costs are identified on an interval scale by the determination of the total operating cost of the specific company versus its generated revenues (Thouin, Hoffman, & Ford, 2009). To measure how the operating costs changed among the firms surveyed, the study calculated the percentage of the operating costs of the company using generated revenue figures as the base number retrospectively for two years. This was done for two reasons. First, standardization of operating costs across all the firms surveyed was necessary because generated revenues were used to control for excessive operating costs in large companies and vice versa. Second, using financial data for two full years will enable any correlations between outsourcing and off-shoring to be evident in operating costs. This is because the impact of economic variables such as inflation will have been well assessed and their impact on a company’s performance be well established.

Generic risks

The major benefit of outsourcing is normally the reduction of costs and maximization of efficiency. To ensure its success, a company usually focuses on finding the best firm to contract a job. Outsourcing and off-shoring IT services should be handled with a lot of care as it serves as the back bone of the company. The generic risks’ that organizations face when deciding to outsource or off-shore will be broken down into three sections followed by a series of questions; security risks, legal issues, and organizational information threats. The kind of response expected for this variable are 0 = No and 1 = Yes to the types of risks specified. These responses would be gotten from the IT managers of the companies since they are the most likely to understand the risks involved in outsourcing and off-shoring.

Customer satisfaction

Customer satisfaction is the degree to which the clients are content with the service provision of the company. Customer satisfaction was determined on an ordinal scale by asking the respondents, “How satisfied are you with the products of the company?” Their responses were then plotted on a five-point Likert scale between 1 (poorly satisfied) and 5 (very satisfied) (Francis, 2006). This variable will involve the ordinal level of measurement as the responses will be ranked in an order based on their level of satisfaction. This data will be obtained directly from the customers since it is their satisfaction that will be evaluated.

Profitability

Profitability indicates the ability of a company to yield a financial gain or profit. It is commonly measured by a price-to-earnings ratio that is either market price per share or earnings per share. To assess profitability, the researcher used the profitability ratios from different companies that could be attributed purely to the business outsourcing and off-shoring its IT. The data was obtained from the survey information collected; the figures were an interval level of measurement as it was not possible to have zero profitability (Blumann, 2009). This data will be obtained from the income statements of the outsourcing company.

Participants

Participants are operationally defined as the position the respondent currently holds. The responses were coded and given labels as follows: IT Technician = 1, IT Manager = 2, Senior Manager = 3, IT Program Manager = 4, and IT Director = 5.

Organization performance

This is an accumulated end result of organizational processes and activities. Performance of the organization is directly affected by all departments. Failure of one department might greatly affect the overall organizational goals of success. Commonly, organizational work measures include organization effectiveness, productivity, profitability, innovation, and operational efficiency (Hazra, Turban, McLean, & Wetherbe, 1999). The outsourcing firm should be able to meet the defined standards of performance of the employer to ensure its relevance to the employer. Since performance is a complex variable to determine using structured questions in questionnaires and survey, records from the company will be used with the permission of the management. Additionally, some survey questions will be used directed to the top management of the organization.

Research Method

This study examines the drivers, impacts, and usefulness of IT outsourcing to organizations’ business processes and operating costs. Quantitative research method entails use of statistical methods and numbers (Thomas, 2003). It uses numeral measurements to evaluate a particular phenomenon. The method involves the collection of quantifiable data that can be subjected to statistical treatment. The collected data is then analyzed using mathematical tools such as regression analysis.

There are three aspects of this study that include reasons for the emergence of IT business outsourcing, risks associated with its use, organization’s customer relationships, and performance. The method is suitable for this study because it will enable the researcher to obtain first hand data that will increase the reliability and validity of the study, hence making the study valid for any user (Tashakkori & Teddlie, 2010).

Literature Review

Information technology represents an important factor in the modern world given the advance in technology. Among many other things, it helps firms innovate and produce high-quality products that meet customer needs and demands. Due to the constantly changing business environments, firms have found it necessary to reduce operating costs while exploiting the comparative advantages of human IT skills offered by other countries (Manaschi, 1998). Therefore, companies have opted to outsource critical IT skills to other firms in other nations endowed with the requisite expertise. In spite of the benefit of cost reduction and improved operations, IT outsourcing poses security and generic risk issues to firms (McKendrick, 2010). If a firm manages these issues well, it will likely benefit through increased innovation and high product quality that could positively improve customer satisfaction and, hence increase customer loyalty. This study examines outsourcing, specifically as it applies to IT organizations.

Outsourcing is the act by which a company or an organization pays another firm to produce goods or offer services on their behalf (Blokdjik, 2008). In many cases, the company could have produced the goods or offered the service themselves, but sometimes doing so involves higher costs to the company. Off-shoring on the other hand describes a business process that companies use when they decide to relocate their operations to lower cost locations, mainly overseas (Trojahn, 2009).

The requirements and expectations of customers in different markets are becoming more demanding. Businesses are therefore required to take appropriate actions in order to satisfy the demands of a certain market. Value addition to products has for a long time been used as a means of creating a competitive advantage by many businesses, however these strategies are not enough in themselves, thus outsourcing was embraced. Outsourcing and off-shoring has been around for many decades and companies seek these services due to a number of reasons. No matter what the reason, the rate at which companies are outsourcing and off-shoring their service is steadily increasing. This has led to the globalization of services, consequently boosting trade and commerce all over the world (McKendrick, 2010).

Technology development and trade practices

The level of trade has grown remarkably over the last few decades because of the advances that are being made in the field of information, communications and technology (ICT) (Jovanovic, 2011). These advances have also increased the number of tradable services in the field of IT and ICT, which have made the outsourcing and off-shoring of services much easier. The ease in the tradability of these services, coupled with the increased independence of the location, has contributed to the off-shoring of services by many companies in the West (Kapila, 2009). Companies are now outsourcing services such as support, customer care, research and consultancy. The main reason behind this is that outsourcing of services is much cheaper with the end result remaining of a high quality (Tenner, 2011). The development in IT and ICT has motivated organizations to outsource their products and services all over the world. India provides most of these services (Blokdjik, 2008).

India is a prime location for IT outsourcing and off-shoring. It has a large skilled labor force. The high population increases the competition for employment, which means that labor is relatively cheap. India also has a high number of competent personnel in almost all industries. These individuals are highly educated, professional, and have much experience, knowledge and skills, which is required to execute their respective tasks effectively. This group can also speak and write English fluently, an aspect that gives them a competitive edge over rival countries such as China, Singapore, and Malaysia (McKendrick, 2010).

With the revolution in IT and ICT, location is not of the high concern it used to be. The advancement in technology has made the transmission of inputs and outputs much easier. These processes can now be conducted digitally and transmitted via electronic means (Smith, 2006). Companies have therefore off-shored much of their services, especially white-collar jobs, to improve their sustainability and efficiency. The customer care for the computer manufacturer Dell, for example, is located in India (Kurtz, 2010). When local residents call the customer care, they are being served by an operator who is located in India (Tenner, 2011).

Sustainability of outsourcing

Despite the benefits accrued from outsourcing and off-shoring, there has been a lot of debate on the effectiveness and sustainability of this trend. It is evident that outsourcing and off-shoring benefits both the origin and destination country. The destination country enjoys increased rates of employments and free trade, and the origin country enjoys the availability of goods and services. The mutual relationship between these two countries is beneficial, since both of their Gross Domestic Products (GDP) will increase in the short and in the long run (Jae-Nam, 2008).

Outsourcing and off-shoring has been shown to provide success and efficiency. As a result, many companies have adapted these mechanisms. However, some analysts claim that such companies may lose the control of their overseas organizations, an occurrence which maybe very risky (Plunkett, 2006). IT market competitiveness has provided opportunities for equivalence of service level, which has resulted in a loss of brand identity and brand community and decreased market share (Plunkett, 2006).

These criticisms of outsourcing and off-shoring raise many questions as to the efficiency of outsourcing. Outsourcing and off-shoring has increased trade to a new level, enhanced globalization, and improved the operations of organizations all around the world (Doh, 2005). These outcomes have only been experienced in the short run. The sustainability of outsourcing and off-shoring remains in question. This is because there are a number of drawbacks that are coupled with outsourcing and off-shoring of IT services (Hirschheim, 2009). These drawbacks affect the free market by changing the balance of trade. A study should therefore be conducted to investigate the viability and sustainability of IT outsourcing and off-shoring (Lacity, Willcocks, & Feeny, 2004).

The Factor Endowment Theory

The factor endowment theory tries to give an explanation for comparative advantage. This theory explains global trade in relation to factor endowments. This theory explains the existence of comparative cost differences (Sokoloff & Engerman, 2000). The theory attributes the disparities to: diverse existing endowments of production factors and the requirement to utilize production factors with varying rates of intensity. In international business, countries as well as companies are endowed with different factors that affect their production costs. One of these factors of production is information technology functions. With outsourcing and off-shoring, multinational businesses that do not have sufficient IT capabilities or those in need of lowering costs of production are able to access IT functions efficiently. This gives such companies a competitive advantage in the competitive global market. Companies are therefore able to outsource IT functions from other countries in order to lower the cost of production (Fujiwara & Shimomura, 2005).

Drivers of Outsourcing

Every organization in a given industry aims at various goals (Jae-Nam, 2008). However, major objectives include maximizing profit or revenues earned from sales. In order to achieve this objective, the management focuses on reduction of all costs incurred by the firm. A study conducted by Oshri (2011) established that firms outsource IT services to other firms in different countries and regions in order to minimize operating costs. Since costs are important factors in profit determination, the organization uses various strategies to minimize costs, one of them being outsourcing (among others such as large-scale production).

The theory of factor endowments put forward by Heckscher and Ohlin postulates that countries have different factors of production that enable them to gain a comparative advantage over other nations (Manaschi, 1998). This theory could be used to explain the pressure for companies to outsource IT services to other countries. Countries that have enough skilled IT expertise have a comparative advantage over countries that do not have the expertise. Therefore, organizations operating in such deficient countries tend to outsource the services from well-endowed nations in order to improve their competitive advantage. Therefore, outsourcing is a form of international trade that occurs because IT skills differ between countries. Tenner (2011) supports this theory as applied in outsourcing by noting that organizations that outsource IT expertise obtain the best skills for the right cost and at the right time. Organizations have identified IT talent limits among their employees and talent from outside the company best fills the gap. Outsourcing IT expertise enables an IT firm to be nimble in the quest to fulfill business unit requests, especially with regard to operations that are likely to run behind schedule (Plunkett, 2009).

Large enterprises generally tend to have the resources to establish their own. However for most small to medium sized firms, it makes financial sense to outsource a call center with the aim of providing technical and customer support to current clients as well as potential customers. Outsourcing certain services helps in streamlining a company’s performance hence saving both time and money. In recent years it has become a common trend to move call centers to foreign countries such as India.

Benefits of outsourcing

Reduced Differentiation

It is difficult for firms to decide on what to outsource and what not to outsource (Mitra & Ranjan, 2010). The rule of thumb is the basis of many IT outsourcing contracts. This rule postulates that firms should outsource non-strategic IT functions while strategic IT functions should be left to the internal IT team of the firm (Nambiar, n.d.). Firms initially outsourced all IT functions from one vendor, leading to a lack of variety and low quality services, and hence reduced differentiation in the products offered by the company. However, this trend has changed over time, with organizations distributing the outsourced IT functions to different corporations. For instance, British Petroleum (BP) decided that the company no longer needed to own the technologies that provide business information to its employees, and outsourced its IT expertise and functions from different firms from different regions (Nambiar, n.d.).

Following outsourcing of IT functions, the firm benefited in many ways. Firms that outsource strategic IT functions are in the position of bringing necessary organizational cultural change needed for creation of competitive advantage (Bhalla et al., 2008). The business processes are also improved, because outsourcing enables firms to improve their operations. For instance, outsourcing encourages business managed budget development and controlled project expenditure. Thus, firms are encouraged to outsource the latest IT technologies that can enable them properly to budget and manage projects. Another benefit that firms realize is the cost management controls. Outsourcing and off-shoring helps firms to minimize expenditures while increasing company savings (Doh, 2005). In a survey conducted by Lall & Narula (2004), it was noted that outsourcing and off-shoring is able to reduce costs incurred by an organization by up to 20% of the annual budget. Although many organizations dispute outsourcing costs, IT costs could have risen for corporations in the industry.

Mani, Barua, and Whinston (2010) conducted a study that sought to establish the impact of information capability on the ability of a firm to outsource IT technology and personnel. The survey measured service satisfaction as applied in other outsourcing studies. It was established that satisfaction is a proxy for perceived effectiveness of outsourced technology. Following their survey, this study measured several variables that would include effectiveness of outsourced technology, cost reductions, satisfaction and innovativeness. The data in the variables would be collected using interviews and questionnaires as explained above. The coding process would take place in preparation for analysis by SPSS.

A study conducted by Mitra and Ranjan (2010) focused on the impact of off-shoring on unemployment. In their survey, they established that in a two-sector labor market, an increase in off-shoring of IT skills given labor mobility would result in increased wages and reduced unemployment. They used questionnaires to collect data on the level of outsourcing in the different sectors. The questionnaires were subjected to pilot studies to establish their effectiveness. Similarly, this survey will develop a number of questions that will be administered to the respondents.

Cost effectiveness

Outsourcing certain function to foreign countries and in particular the third world countries, costs much less as compared to establishing them in the developed countries (Sharp, 2003). This is occasioned by the reduction in the cost of manpower in the developing countries. Consequently, companies can access high-quality services on a daily basis at reduced costs, translating into even more profits for the establishment. The cost-effectiveness aspect is also supported by the fact that the developing countries have the operational expertise to provide the needed services without compromising on quality.

Specialization

Outsourcing a number of operations to foreign countries provides the perfect opportunity for specialization in the different aspects of company operations such as telemarketing, disaster recovery and technical help desk services (Blokdijk, 2007). Such specialization if introduced in a company located in developed countries like the United States and the United Kingdom would require the input of hefty financial resources as compared to setting up the company in the developing countries.

Manpower

Developing countries such as India tend to have an impressive number of individuals with the necessary qualifications to provide various Information Technology services. The increase in the number of college graduates in such countries without the necessary institutional framework to absorb them into the job market means that outsourcing in such countries will attract more workers willing to work at a much lesser pay as compared to their counterparts in the developed countries (Sharp, 2003). Even though companies may initially be required to spend a substantial amount of money in staff training, the eventual benefits are much higher than the costs.

Time-zone advantages

Outsourcing the services of a company in countries with a twelve-hour time difference from the parent country means that a company can easily offer around-the-clock services to their customers (Blokdijk, 2007). This is because they can offer day time services within the mother country of the company and then outsource the night time duties to a different country going through daylight at the time. In this way the enterprise ensures that its customer’s needs are well attended to irrespective of the time of day.

Generic Risks in IT Outsourcing and Off-shoring

Every organization gets the outsourcing and off-shoring collaborator that it deserves (Adeleye et al., 2004). Therefore, firms that experience inefficiency in IT management end up getting incompetent outsourcing partners. In contrast, organizations that have efficient management of their IT departments always obtain competent IT outsourcing partners. In addition, other firms that do not conduct enough research in determination of outsourcing partners are worse off because they may end up overhauling their better IT expertise for worse outsourced expertise. In addition to these risks, there are many others. For instance, outsourcing requires best management skills. Organizations that lack good management skills may not reap maximum benefits from outsourcing.

According to Varadarajan (2009), some companies have difficulties in managing their IT departments. Such organizations may face challenges in maintaining outsourcing. Other corporations that do not undertake market testing for IT outsourcing run the risk of missing out on the benefits of IT outsourcing.

Most companies focus on cost reduction as the main driver of outsourcing (Yang et al., 2007). However, overreliance on this factor is not necessary, since most of the benefits of IT outsourcing are not transparent. The supply of outdated technology is another risk common in long-term IT outsourcing contracts. This may result in unfruitful relationship between the two companies. It is evident that IT skill outsourcing can reduce the operating costs of a firm. However, this can only be realized if the company can manage its IT management costs.

Security Concerns

Security concerns have been raised concerning outsourcing and off-shoring of IT expertise from other countries. Outsourcing firms run the risk of breaches of information security, and there is hence the need for auditing and restricting system users for the organizations (Tenner, 2011). Not all foreign software coders could be trusted by outsourcing firms. It is important that outsourcing firms conduct proper background investigations of foreign software coders. Given that only a few firms conduct such investigations, corporations involved in outsourcing are not safe since their confidential information could be compromised (Mani, Barua, & Whinston, 2010).

Customer Reactions

The reactions of customers regarding company products vary depending on the overall effects of outsourcing. To begin with, outsourcing can prevent a firm from innovating. Companies usually have high expectations of outsourcing, including innovativeness at lowest costs, which can result in unrealistic expectations (Gibb & Buchanan, 2006). However, innovation requires that the firm provide the necessary resources, flexibility and in-house competency (Couto et al., 2007). Due to these inadequacies, the firm may be disappointed, and hence also disappoint the clients in terms of quality of produced goods. Customers may react to this by finding alternative products. In contrast, the benefits of outsourcing could result in increased innovativeness, low costs, high product quality and customer satisfaction and loyalty (Garner, 2004).

Summary

From factor endowment theory, it is evident that countries have different amounts of resources or factors of production. It is obvious that countries that are endowed with large amount of resources tend to perform better than those with fewer resources. However, outsourcing has come up as a business function that makes it possible for business to acquire those resources that they lack or have in fewer quantities. Outsourcing is the ability of firms to seek human capital from other nations. Many firms operating in different fields have been reported as outsourcing different skilled human capital from different countries. One of the most significant skills sought is IT, outsourced by IT firms. The outsourcing of IT personnel is driven by many factors, including the need to minimize costs while maximizing profits, the need for innovation, inadequate local IT skills. IT outsourcing is good for firms because it enables the firms to obtain rare skills that cannot be obtained locally, provides the ability to minimize operating costs and improves business processes, among other benefits.

In spite of these benefits, however, outsourcing poses some generic risks to the firm (Shachaf, 2008). The outsourcing firm is likely to obtain incompetent IT personnel or obtain IT technology that has not been tested. In addition, untrustworthy vendors who may also compromise the security of confidential information of the firm may exploit the firm. It is therefore important that the outsourcing firm conduct enough investigation regarding IT technology vendors before outsourcing (Bhatt et al., 2010).

Organizations have resorted to carrying out IT business outsourcing and off-shoring by pursuing the advantages that comes with it. In contrast, though, this process may not be entirely what it appears to be on the basis of face value. This research shall therefore bridge the gap of the knowledge claim of the advantages or disadvantages of IT business outsourcing and off-shoring. The design chosen will help interact with people with knowledge in this field, thus providing required information that will be used to validate the findings. Since analysis shall be conducted purely using categories, there will be little in the conclusions made pertaining to the population at large (Safizadeh et al., 2003).

Conclusion

Organizations resorted to carrying out IT business outsourcing and off shoring by pursuing the advantages that come with it. However, this process may not provide all the value it may appear to do at face value. This research shall therefore bridge the gap of the knowledge claim of the advantages or disadvantages of IT business outsourcing and off shoring. The design chosen will help interact with people with knowledge in this field, thus providing required information that will be used to validate the findings. Since analysis shall be conducted purely using categories, there will be little in the conclusions made pertaining to the population at large.

Outsourcing is one of the strategies that have been accredited for giving a company mileage as far as customer attraction is concerned. However, in order for an institution to make profits, it is imperative that the costs incurred in the running of the call center be kept at the lowest level possible while at the same maintaining a high level of quality. This report has analyzed the various reasons as to why companies choose to outsource. The benefits identified include cost effectiveness, specialization, manpower and time-zone advantages.

Organizations seeking to outsource of off-shore information technology functions and services need to realize that there are advantages as well as disadvantages or challenges of doing so. This research provides both positive and negative effects to the outsourcing company. Understanding the kinds of risks and challenges involved makes it possible for companies to make informed decisions. The benefits of outsourcing and off-shoring might seem obvious, but without careful considerations, these processes can cost a company a lot. This can even lead to a loss. Different companies gain different benefits and suffer different losses in using IT services that are outsourced. This means that every company should consider its factors and limitations before making the decision to outsource.

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