It Outsourcing

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Saurabh Pathak

              IT Outsourcing Evolution- Past, Present, and Future
                             By Jae-Nam Lee, Minh Q. Huynh,
                           Ron Chi-Wai Kwok, and Shih-Ming Pi

                    May 2003/Vol. 46, No. 5 COMMUNICATIONS OF THE ACM, pages 84-89

This paper focuses on trends of IT outsourcing. Outsourcing has played an important role in IT
field. The paper gives timeline of its trend from 1960s till now, describes the issues involved in
its evolution, and summarizes the changes along with theories from the literature. It also
illustrates how global and partner-based alliances evolved from the client-centered view of
outsourcing, and how outsourcing may be transformed in the era of e-commerce. It gives an
integrative view of IT outsourcing and sees ASP as the future of outsourcing.

IT outsourcing is not a new phenomenon. In the 1960s, it was limited to facilities management
services. Contract programming became the predominant form of outsourcing during the 1970s.
In the 1980s, the focus shifted to IT-supported customization and vertical integration. It was in
1990s, when outsourcing became popular. Distributed system integration was an important part of
it and involved highly complex technology, including network and telecommunication
management, and application development. Outsourcing started in the form of external
acquisition of a commodity. Then the virtues of its benefits, risks, scope, and performance were
debated. Then there were complex formal contracts. Finally, many organizations sought partner-
based outsourcing, which was more flexible than contracts, and became successful. Scope of
outsourcing grew from problematic, mismanaged IT departments to mature IT departments as
higher no. of IT functions and IT personnel were part of the transaction. The first stage of
outsourcing evolution was driven by client self-interest, shaped by a hierarchical relationship and
dictated by a win-lose strategy. The second stage was an integration of mutual trust, cost
efficiency and the competitive gain. Partnering is now becoming prevalent and is an integral part
of new and diverse Internet solutions. The paper sees ASP as a future of outsourcing due to its
faster time to market, IT expertise, ease of use, and lower cost.

The paper starts with an example of CD-Max Enterprises and NetCreations, Inc. to describe new
form of successful partnerships in e-commerce. It mentions not only the advantages of
outsourcing such as significant cost reduction, effective use of human resources, higher capacity
on demand, and better access to advanced technologies; but also its risks including potential loss
of control, flexibility, qualified personnel, and competitive advantage in information
management. The evolution of outsourcing is explained in stages and it becomes very clear with
the help of a diagram. The two-stage model of IT outsourcing provides great insight into it. Its
economic, social and strategic perspectives provide a comprehensive integrated view. These
concepts become clearer due to well-designed figures. ASP has been explained in great detail.
The paper makes clear what they are, their services, advantages, drawbacks. It also mentions what
is needed to achieve a productive partner relationship.

But this paper lacks in few areas. It should have started with at least brief introduction to the
subject i.e. what outsourcing is. The driving theories behind the evolution of outsourcing issues
are just stated and their reference remains vague. The paper stresses partner-based outsourcing.
Few examples of companies in successful partnership would have made it more convincing. Poor
communication and coordination between companies may prove costly. If there is a significant
staff reduction, the performance and morale of the remaining employees may be greatly reduced.
Also, there may be a large cost and difficulties involved in building partnerships between the two
companies. Knowledge sharing among different companies with difficult cultures, structures and
goals can be difficult to achieve and time consuming. The paper didn’t address these issues.

Critical questions:
Some questions arise after reading this paper.
1.Should the company take out the entire IT functions or reduce/alter the roles of redundant in-
house IT staff?
2.Which party (purchaser or outsourcer) will hold and which party will administer the terms of
3. Should a dispute arise and the agreement be terminated, who will own the information and
4. If the outsourcer is going to perform certain services using the purchaser's equipment, who will
own these assets?
5. What kinds of software outsourcing development resources are available in the market today?

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