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Outsourcing of IS functions refers to the practice of turning over part or all or an organization's IS functions to one or more external service providers. Such outsourcing could involve the outsourcing of human resources (managers, programmers, analysts, technical specialists, etc.), or technological resources (hardware, software, technology platform, etc.) or different degrees of both. Information Technology (IT) outsourcing is proliferating, especially after Eastman Kodak handed over its entire data center, network, and microcomputer operations to third parties about four years ago. This deal was well publicized, along with those of other companies like General Dynamics, American Standard, Copperweld and Dial. In fact, according to Input Corporation of Vienna, Virginia, the outsourcing market is expected to jump from $10 billion in 1991 to about $27 billion in 1997. These numbers provide undeniable testimony to the growing significance of IT outsourcing and the need for corporations to proactively make and manage their outsourcing decisions.
Interestingly, the phenomenon of outsourcing is far from new. Traditionally, outsourcing was practiced by smaller companies as a way to obtain IS services that were not feasible internally. Also, certain industries (like thrift institutions) have long purchased time-sharing and facilities management services. Time-sharing services allow companies to utilize the precious computer time through machines owned by the external provider. Facilities management type arrangements allow external providers to manage the computing facilities located within the premises of the service receiver. In the first case the technology itself is outsourced, while in the second personnel are outsourced. However, in both cases the services provided were generic, typical of the data processing days of the IS function.
Today's IS environment is much more complex. Outsourcing is growing, partially in response to some of the highly publicized cases discussed above, and partially because corporations are looking for ways to simplify their IS environment. Today, even larger companies with mature IS departments are outsourcing in their efforts to focus their resources on high value added activities. We are also seeing much more complex outsourcing arrangements that involve both resources and personnel. Functional outsourcing provides organizations the flexibility to choose specific IS functions they wish to outsource. These could include traditional functions like application development and systems operations, newer functions like information center operations and telecommunications management, or...