An example of this type of service is the "application management outsourcing" service, which involves the ongoing management of applications. In application outsourcing services, businesses rely on the general model of outsourcing, which is to delegate application work to a third-party company, in order to avoid the burden of doing that work in-house. Some business people also refer to the outsourcing of business processes, such as accounting , as "application outsourcing," either because various software applications are used or because the term has become a business jargon.
It also mitigates some risks by sharing them with the vendor. But it requires a greater level of governance to do well. IT organizations are increasingly looking for partners who can work with them as they embrace agile development and devops approaches. The term outsourcing is often used interchangeably — and incorrectly — with offshoring, usually by those in a heated debate. But offshoring or, more accurately, offshore outsourcing is a subset of outsourcing wherein a company outsources services to a third party in a country other than the one in which the client company is based, typically to take advantage of lower labor costs.
This subject continues to be charged politically because unlike domestic outsourcing, in which employees often have the opportunity to keep their jobs and transfer to the outsourcer, offshore outsourcing is more likely to result in layoffs. Estimates of jobs displaced or jobs created due to offshoring tend to vary widely due to lack of reliable data, which makes it challenging to assess the net effect on IT jobs. In some cases, global companies set up their own captive offshore IT service centers to to reduce costs or access skills that may not result in net job loss but will shift jobs to overseas locations.
In recent years, IT service providers have begun increasing investments in IT delivery centers in the U. Demand for digital transformation—related technologies specifically is driving interest in certain metropolitan areas. Offshore outsourcing providers have also increased their hiring of U. IT professionals to gird against potential increased restrictions on the H-1B visas they use to bring offshore workers to the U. Some industry experts point out that increased automation and robotic capabilities may actually eliminate more IT jobs than offshore outsourcing.
Outsourcing is difficult to implement, and the failure rate of outsourcing relationships remains high. Depending on whom you ask, it can be anywhere from 40 to 70 percent. At the heart of the problem is the inherent conflict of interest in any outsourcing arrangement. The client seeks better service, often at lower costs, than it would get doing the work itself.
The vendor, however, wants to make a profit. That tension must be managed closely to ensure a successful outcome for both client and vendor. Another cause of outsourcing failure is the rush to outsource in the absence of a good business case. Outsourcing pursued as a "quick fix" cost-cutting maneuver rather than an investment designed to enhance capabilities, expand globally, increase agility and profitability, or bolster competitive advantage is more likely to disappoint.
Generally speaking, risks increase as the boundaries between client and vendor responsibilities blur and the scope of responsibilities expands.
Whatever the type of outsourcing, the relationship will succeed only if both the vendor and the client achieve expected benefits. See also: " 9 IT outsourcing mistakes to avoid " and " 10 early warning signs of IT outsourcing disaster. A service level agreement SLA is a contract between an IT services provider and a customer that specifies, usually in measurable terms, what services the vendor will furnish.
Service levels are determined at the beginning of any outsourcing relationship and are used to measure and monitor a supplier's performance. Often, a customer can charge a vendor a penalty fee if certain SLAs are not met. But no CIO wants to be in the business of penalty-charging and collecting.
Bad service from an outsourcing vendor, even at a deep discount, is still bad service, and can lead to greater problems. While the outsourcing industry is not quite as fickle as fashion, the prevailing wisdom about the best length for an outsourcing contract has changed over the years. When outsourcing first emerged as a viable option, long contracts — as many as 10 years in length — were the norm. As some of those initial deals lost their shine, clients and vendors moved to shorter contracts.
While decade-long deals have largely gone by the wayside, a transformational outsourcing deal may require more time to reap benefits for both client and vendor. But when outsourcing desktop maintenance or data center support, a shorter relationship may work better. Generally speaking, overly long contracts more than seven years should be avoided unless there is a great deal of flexibility built into the contract. For more on outsourcing contracts, see " 11 keys to a successful outsourcing relationship " and " 7 tips for managing an IT outsourcing contract.
But wholesale outsourcing has proved difficult to manage for many companies. These days, CIOs have embraced the multi-vendor approach , incorporating services from several best-of-breed vendors to meet IT demands. Most major IT services players have done their best to adjust to this trend. In fact, some leading CIOs not only work with a cadre of competing outsourcers , but expect them to meet joint deliverables.
Multisourcing, however, is not without great challenges. The customer must have mature governance and vendor management practices in place. In contract negotiations, CIOs need to spell out that vendors should cooperate and refrain from blaming each other, or else risk losing the job.
CIOs need to find qualified staff with financial as well as technical skills to help run a project management office or some other body that can manage the outsourcing portfolio. The rise of digital transformation has initiated a shift not back to megadeals but away from siloed IT services.
Application outsourcing in IT is a rather general term for outsourcing processes involving business applications.
This can involve many stages of the application life cycle, as well as consulting and related services. Application outsourcing services may include services related to the design, testing, release or production of applications. An example of this type of service is the "application management outsourcing" service, which involves the ongoing management of applications.
In application outsourcing services, businesses rely on the general model of outsourcing, which is to delegate application work to a third-party company, in order to avoid the burden of doing that work in-house. Some businesspeople also refer to the outsourcing of business processes, such as accounting, as "application outsourcing," either because various software applications are used or because the term has become a business jargon.
Recent advances like cloud computing have made possible application outsourcing, which gives many businesses the option to delegate the work of building and working with applications to a range of third-party vendors and service providers. Vendors can utilize an "economy of scale" to specialize in certain application work that would be costly and burdensome for companies to source in-house. Modern Internet technologies like software as a service SaaS allow for more Web-delivered application handling and other kinds of third-party services.
By: Justin Stoltzfus Contributor, Reviewer.
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