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An information technology system can be built through three major ways, which include outsourcing, insourcing and self-sourcing. In the last few decades, there has been a phenomenal increase in the outsourcing of information technology to external providers. According to Chow et al. (2009), the motivation for this trend has been largely economic because outsourcers frequently provide more competitive price points for the same services at comparable service levels. Besides cost savings, firms also outsourced in order to drive their information technology strategies. However, within the same period, small but growing opposite of this trend was also witnessed. Some companies that previously outsourced IT functions seem to be bringing them back in-house, resulting in insourcing. With the inception of insourcing, certain organizations went a mile further and began practicing self-sourcing. This paper essentially compares these three ways of developing information technology systems.
According to Chow et al. (2009), insourcing refers to the cessation of contracting an IT function by an organization and the instigation of performing it internally. This decision is normally reached in order to maintain control of crucial system competencies. In comparison to the other IT development decisions, insourcing has a number of benefits, which are discussed below.
The first benefit of insourcing is improved customer service. One motivation for adoption of insourcing is the need to enhance customer service. This is essentially pertinent when customer functions are outsourced and moved overseas. For instance, voice-based functions, including call centers, might come under scrutiny because of issues such as accent and language. This scrutiny frequently results in perceived or real concerns concerning service quality.
Another advantage of insourcing is that it improves control. Chow et al. (2009) pointed out that insourcing enhances control of functions which were initially outsourced. It is common for management to feel uncomfortable because of the perceived loss of control when functions are decoupled from IT organizations.
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Cost reduction is one of the key motivations for adopting insourcing. The study by Chow et al. (2009) revealed that about 77 per cent of respondents cited cost reduction as their main driver for insourcing. Nevertheless, certain companies are not likely to realize the projected economic benefits of the outsourcing program because of the need for additional quality control.
According to Chow et al. (2009), self-sourcing refers to internal support and development of technological systems by knowledge workers. IT specialists in self-sourced systems seem to have no or little contribution. In other words, knowledge workers construct and use their own system, as compared to contracting out the work. It has the benefits discussed below.
The major benefit of self-sourcing is that it improves requirement determination (Chow et al., 2009). Through self-sourcing, knowledge workers can determine system specifications by deciding on what it should perform. This is contrary to insourcing, where knowledge workers inform technology specialists on what the system should perform. Knowledge workers have the necessary comprehension of what they want the system to perform.
Secondly, self-sourcing improves the participation and sense of ownership of the employees (Chow et al., 2009). Knowledgeable employees are likely to take more pride in the system being developed. The increased sense of ownership can boost employees’ morale.
Increased speed of system development is another benefit of self-sourcing (Chow et al., 2009). Several smaller systems do not need the stepwise approach and a huge amount of resources and time focused on a smaller system. Insourcing might be counterproductive since it involves going through each step with the specialists in order to assess every move. According to Chow et al. (2009), self-sourcing might be extremely fast for smaller projects that do not need the full development process.
Two firms might enter into a contract involving service exchanges and payments. According to Chow et al. (2009), outsourcing assists firms in performing well in the key competencies and mitigating skill or expertise shortage in areas considered appropriate for outsourcing. The various merits of outsourcing are discussed below.
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Outsourcing decreases control-operating costs. When a company outsources, it eliminates the costs linked to hiring employees, such as management oversight, health insurance, and retirement plans. In addition, certain systems might be extremely costly to develop in-house, or consume many resources.
According to Chow et al. (2009), outsourcing enhances the focus of a firm outsourcing the IT services. It is impossible for a company to have all the capabilities for performing all the tasks. Through outsourcing, the company can delegate some of the development functions to other firms having the required abilities. As a result, it can maintain focus on its mission while another company focuses on theirs.
IT outsourcing enables a firm to gain access to exceptional abilities. According to Chow et al. (2009), a firm’s return on investment is great when it outsources technology to another company specializing in the areas it needs. Rather than using the knowledge of one individual, the company can benefit from the experience of specialized professionals. Through outsourcing, the firm can retain employees for their best use.