Outsourcing service delivery
Introduction
Outsourcing is the contracting out of services to a third party (the vender or service provider) to manage on the organizations behalf. In most instances it involves the transfer of ownership and responsibility for assets (including the people) from the organization (the customer) to the vendor.
Traditionally, the decision to outsource is based on the vendors ability to offer economies of scale or specialization at a higher level than that achievable by the organization itself. An emerging concept is that of partnering in which both parties leverage their competitive advantage in the markets-place through each other.
The outsourcing of information-related technology has increased dramatically over the last few years as organazations restructure and concentrate their activities on their core business. Other drivers for outsourcing are to reduce overhead costs, improve service levels, to gain access to know-how, or to take advantage of new technology directions.
Scope of outsourcing
Outsourcing can be applied to any service; from window cleaning to security services. Applied to information-related technology, outsourcing includes information technology, data centre and telecommunications network maintenance and facilities management, personal computer support, infrastructure development , systems maintenance, systems integration, systems development and design, training, end-user support, and service delivery, such as the delivery of value-added information products.
Within the functions of archives, records management and library services the following could also be considered for outsourcings:
· storage and retrieval of records and archives;
· delivery of specialized information services; and
· processing of journals and other stock (including accessioning, assigning the bibliographic description, binding, attachment of bar codes and security tags).
The concept of outsourcing is also being applied to business strategy and change management, business and process re-engineering.
The extent of outsourcing varies and includes:
· shared services where customers pay monthly fees for certain transactions or services. These are provided for, or run on the service provider or vendors systems, alongside transactions of other customers;
· remote computing where a specific part of the vendors installation is reserved for a particular customer;
· total outsourcing where the service provider takes over all, or nearly all of the services and equipment.
Whilst the provision of information services can be outsourced, accountability for servic levels and strategic decisions relating to service provision cannot. The role of the information services manager changes from being a provider of services to a purchaser of services. The fundamental responsibility and accountability for the quality of the end product or service still rests with management.
Outsourcing is a relatively long-term proposition. The length of the contract is usually between three and ten years. This is for two reasons:
· the service provider needs to be assured of a long-term contract in order to achieve a return on investment for the infrastructure they provide; and
· the initial expenses of handover and change mean that the cost savings for the organization are not realized until the third or fourth year of the contract.
Pros and cons of outsourcing
Reasons for outsourcing
Outsourcing is a viable consideration where the goods or services can be provided more efficiently or effectively by an experienced third party. The outsourcing of information-related technologies or the storage of corporate records to a specialist in the field allows the information service and its parent organization to refocus upon its core business or re-engineering its business processes.
The goals for outsourcing can include:
· skills and knowledge transfer;
· technology development and acquisition;
· the migration to new platforms and infrastructure;
· the divestment of legacy systems;
· lessening of overheads associated with storage;
· expanding the delivery of specialized services; and
· access to new markets and services.
Small to medium-sized enterprises, in particular gain. They can enjoy access to new technologies and improved services without a major up front capital outlay or being left with redundant equipment. They also have access to a higher level and greater range of expertise than they could afford by themselves. Existing services can be upgraded or new ones introduced to completely transform the organizations capabilities and services.
Outsourcing can reduce costs by cutting an organizations capital investment in equipment and staff, and it obviates the need for debt financing of expensive information-related technology. It also provides a mechanism to shift technologies, take on board new technology directions, or introduce new information services cheaper and faster than if the organization was locked into an investment in its own infrastructure. Organizational change, mergers and new business or programme start-ups can also be achieved cheaper and faster. There is also more flexibility for handling peaks and troughs in business cycles.
Reasons for not outsourcing
The main reasons that are given for not outsourcing are:
· a fear of loss of control;
· the lack of ability to trust another party with a strategic investment;
· there is not a strong business case;
· the cost and effort of contractual negotiations give little return on the investment in time and legal repressentation;
· it results in constraints on flexibility; or
· concerns over vendor capabilities.
· determining the right objectives and strategy;
· determining what to outsource
· assessing the benefits;
· determining the risks;
· selection of the vendor;
· negotiating the contract;
· structuring the relationship; and
· managing the riskd.
Determining the right objectives and strategy
An inhibiting factor to the success of outsourcing is that organizations frequently do not take the time to determine their objectives for outsourcing and develop a strategy to match. The objectives for outsourcing may be to:
· reduce overhead costs in service delivery;
· improve service delivery levels;
· gain access to a higher level and greater range of expertise;
· upgrade or introduce new information services to transform the organizations capabilities;
· share the level of risk in the introduction of new capital intensive technologies;
· shift technologies;
· manage a new business or programme start-up;
· increased flexibility for handling peaks and troughs in service delivery; or
· focus on core activities.
Each objective will require a different outsourcing mix and strategy, contract and management mechanisms. For example, an outsourcing strategy that is based on allowing the organization to focus on its core bussiness will require a totally different partnership arrangement than one that is focused on a shift in technology
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