Information technology is one of the areas that have experienced a great deal of growth over the decades (Drnevich, & Croson 2013). People need the fastest and safest ways of doing business, interacting and communicating across the world. As noted in the article by Han, and Mithas (2013) titled “Information technology outsourcing and non-IT operating costs: An empirical investigation,” the availability of the market has influenced technological developments as it has been observed over the years. Information technology is essential to any organization (Han, & Mithas 2013). However, what is also important is how a company gets to use its information technology resources.
Based the need to save costs, have control over the systems and quality, there are two approaches that companies continue to employ, outsourcing or insourcing (Han, & Mithas 2013). However, the issue of whether outsourcing or insourcing is vital in cost reduction is considered. Most often companies want to engage in practices that will help save them some money or resources as observed by Han, and Mithas (2013).
Furthermore, according to “Review of 23 Years of Empirical Research on Information Technology Outsourcing Decisions and Outcomes” by Lacity, Yan, and Khan (2017, January), one of the approaches is through onshore sourcing or insourcing. This means getting the services or products for information technology within the same country where a company is located. On the other hand, there is offshore sourcing or outsourcing whereby a firm gets services on information technology from other countries (Lacity, Yan, & Khan 2017, January). Also, the needs of a business influence the choice of insourcing or outsourcing that a company will make.
Moroever, one thing that is noted is that many organizations will prefer insourcing due to several factors. One, there is the issue of the cost involved with outsourcing which is quite high compared to insourcing. Additionally, focusing on 741 empirical findings, the authors note that the issue of fear of losing control and their intellectual property was a driving factor that influences clients to choose insourcing rather than outsourcing. However, it all depends on the needs of a client and the motivating factors that influence their decisions on which approach to take (Lacity, Yan, & Khan 2017, January).
Additionally, the authors noted that most often many companies prefer insourcing because it allows the chance to interact with the vendors unlike in the case of outsourcing whereby they do not know and have no relationship with vendors (Lacity, Yan, & Khan 2017, January). The impact of this is that they can bargain for discounts and also get services and products that suit their needs.
However, despite the fact that outsourcing may be seen as expensive compared to insourcing, some companies prefer outsourcing based on the operational costs involved in running an information technology system (Lacity, Yan, & Khan 2017, January). Through outsourcing, a company can transfer such costs to the other company, enjoy lower tax rates depending on the country where the outsourcing is taking place and quality services from vendors and providers.
Factors influencing the choice of Strategy
Based on the above articles, the factors that were noted as of significance included the issue of costs of each approach and how it affects the resources of a company (Van de Vrande 2013). As noted, many companies would prefer insourcing since it is cheaper than outsourcing. Also, the size and capacity of a company is another important factor to consider (Han, & Mithas 2013).
Another factor that was seen as of great importance in the two articles was the need for freedom and control over the information system that a company uses (Drnevich, & Croson 2013). Many companies prefer a system that they can control, monitor and are assured of the safety of their intellectual property. As a result, the sourcing strategy that a company picks must be in line with the objectives it wants to meet (Van de Vrande 2013). From the articles, most often the decision is always strategic and focused on achieving both the short and long-term needs of a company. This is based on the reason that the choice of a strategy involves costs and as such, to save resources, a company would prefer to have a strategy that meets its short and long-term objectives.
Finally, the strategy that is seen as the most effective based on the considerations made above is the insourcing strategy. One of the advantages is that a company has total control over its systems and can protect its intellectual property as it thinks is best. Another advantage is the costs of insourcing which is considerably cheaper than outsourcing. This helps reduce the costs of operations and maximize the profits (Drnevich, & Croson 2013). It is also essential to note that insourcing gives a company the freedom to change or upgrade the system whenever it does not meet its needs within a short time. Outsourcing, on the other hand, will require that a company must not breach the contract entered; hence, could delay the process and incur more costs.
Drnevich, P. L., & Croson, D. C. (2013). Information technology and business-level strategy: Toward an integrated theoretical perspective. Mis Quarterly, 37(2).
Han, K., & Mithas, S. (2013). Information technology outsourcing and non-IT operating costs: An empirical investigation. Mis Quarterly, 37(1).
Lacity, M., Yan, A., & Khan, S. (2017, January). Review of 23 Years of Empirical Research on Information Technology Outsourcing Decisions and Outcomes. In Proceedings of the 50th Hawaii International Conference on System Sciences.
Van de Vrande, V. (2013). Balancing your technology?sourcing portfolio: How sourcing mode diversity enhances innovative performance. Strategic Management Journal, 34(5), 610- 621.