For the past 15 years, governments in the developed, Western world have been contracting out, or outsourcing, services as a key part of publicsector reforms. Outsourcing has been argued to lead to cost savings, improved discipline, better services, access to scarce skills, and the capacity for managers to focus more time on the core business of their organizations (Domberger, 1998). Government outsourcing initiatives have encompassed a range of services, but given the large sums of money invested in IT assets, the outsourcing of IT services (IT outsourcing, or ITO) has been a major initiative for many agencies. Lacity and Willcocks (1998, p. 3) defined ITO as “handing over to a third party [the] management of IS/IT assets, resources and/or activities for required results.” For public-sector outsourcing, this handover is usually made by way of a competitive tender. Case studies have reported ITO successes and failures (e.g., Currie & Willcocks, 1998; Rouse & Corbitt, 2003; Willcocks & Currie, 1997; Lacity and Willcocks, 2001; Willcocks & Kern, 1998), but much of the evidence presented to public-sector decision makers to justify this reform is anecdotal and unsystematic, and when investigated in depth, does not necessarily support widespread conclusions.
Key Terms in this Chapter
Transaction Costs: Transaction costs are the costs of contracting with a vendor through the marketplace in contrast to coordinating and managing service provision in-house (i.e., through the hierarchy). Key costs include finding, choosing, contracting with, monitoring, and controlling the work of the vendor, as well as coordinating the vendor’s activities with others being carried out by the purchaser.
Risk: Risk is the potential harmful or undesirable consequences (downsides) that might arise in the future from a decision or course of action. Examples in the context of ITO include the release of confidential data, loss of organizational knowledge, and reduced business flexibility.
Business Process Outsourcing (BPO): BPO is the outsourcing of relatively complex business processes or activities that are supported by information technologies.
Offshoring: This is offshore outsourcing or cross-national outsourcing, where the vendor and client operate in different countries.
IT Outsourcing (ITO): ITO is the outsourcing of IT services. The term is usually used in contrast to business process outsourcing, where the business function or process (including the IT that supports it) is outsourced. ITO includes the outsourcing of unique, once-off systems development projects, as well as the outsourcing of ongoing IT services, such as mainframe hosting, desktop support, telecommunications installation and maintenance, or maintenance and support of legacy systems.
Business Process: A business process is a set of interrelated organizational activities performed by a number of individuals with the goal of generating customer value.
Outsourcing: Outsourcing is the provision, at an agreed price, of specified services by an external vendor that is contracted to manage the day-to-day activities (and related assets and resources) so as to meet agreed performance and quality standards. Outsourcing involves specifying what will be done rather than how it will be done.
Privatization: Privatization is the conversion of a government-owned enterprise to private ownership and operation. The theory behind privatization is that private enterprises run more effectively and offer better service.
Production Costs: The costs of the processes involved in creating and distributing goods or services
Risk Exposure: Risk exposure is the likelihood or probability of an undesirable future event, multiplied by the magnitude (e.g., costs) of the consequences of the event. RE = Probability(event) x Consequences(event)