Effective IT outsourcing arrangements

Abstract

IT outsourcing is about contracting technology services to a third-party but involves much more than the contractual definition of the arrangement. Structuring the alliance, managing the relationship and planning for the business must complement the contractual arrangements. It is not until all of these elements are aligned that IT outsourcing is likely to succeed. Each outsourcing activity has a variety of choices which when combined can result in perceptually different IT outsourcing contracts. Arrangements can vary from service bureau-type transactional processing in a buyer/seller contractual stance to a strategic partnership in a gain-risk sharing contractual stance. These extremes look completely different, involve different behaviours and serve different business objectives. At the transaction-oriented extreme, the emphasis is put on the contract and on achieving narrowly focused business goals, while at the relationship-oriented extreme of the relationship possibilities, the emphasis is put on achieving broad business-wide business goals and on developing a partnership with exhibited behaviours of reciprocity, forbearance and avoiding opportunism, which are all meant to build trust. Companies considering IT outsourcing must decide which arrangement is suitable for their purposes and build in the appropriate behaviours through all aspects of the arrangement.