Published by:
Harvard Business Publishing
Length: 10 pages
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Abstract
Executives pondering which parts of their information technology (IT) function should be outsourced and which should be kept in-house usually ask themselves, Does the particular IT operation provide a strategic advantage or is it a commodity that doesn''t differentiate us from our competitors? If it is a strategic service, they keep it in-house. If it is a commodity--especially one that a supplier claims it can provide inexpensively--they outsource it. If only the decision were that simple. Between 1991 and 1993, the authors studied 40 U.S. and European companies that had grappled with the issue of outsourcing IT. Their conclusion: The strategic-versus-commodity approach usually led to disappointments. Instead, the authors argue, a company''s overarching objective should be to maximize flexibility and control so that it can pursue different options as it learns more or as its circumstances change. The way to accomplish that goal is to maximize competition. Managers should not make a onetime decision whether to outsource. They should create an environment in which potential suppliers--external as well as internal-- are constantly battling to provide IT services.
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Abstract
Executives pondering which parts of their information technology (IT) function should be outsourced and which should be kept in-house usually ask themselves, Does the particular IT operation provide a strategic advantage or is it a commodity that doesn''t differentiate us from our competitors? If it is a strategic service, they keep it in-house. If it is a commodity--especially one that a supplier claims it can provide inexpensively--they outsource it. If only the decision were that simple. Between 1991 and 1993, the authors studied 40 U.S. and European companies that had grappled with the issue of outsourcing IT. Their conclusion: The strategic-versus-commodity approach usually led to disappointments. Instead, the authors argue, a company''s overarching objective should be to maximize flexibility and control so that it can pursue different options as it learns more or as its circumstances change. The way to accomplish that goal is to maximize competition. Managers should not make a onetime decision whether to outsource. They should create an environment in which potential suppliers--external as well as internal-- are constantly battling to provide IT services.