Outsourcing occurs when a function or department of a company, which was traditionally guided by company staff, is instead completed by a third party. The nature of outsourcing has changed from facilities management and time sharing to functional outsourcing. A lot of companies are outsourcing telecommunications, system operations, management of PCs and the computing infrastructure, even strategic planning in some cases. This third party are sub-contracted to all parts of the information systems services to a company. There has been an increase in the amount of subcontracting, where firms do not carry out the whole of the production process themselves but subcontract some of their activities to other organisations.
Subcontracting goes some way to explaining the vast growth rate in business services that occurred in the 1980s. It has changed since the early days of the industry in the early 1970s, when outsourcing relationships were essentially time-sharing arrangements and facilities management. It is increasingly common for businesses to have specialist work subcontracted in areas such as human resource management to outside consultancies.
The main reasons for taking this approach into consideration is usually cost reduction and to enable focus on the core business. The functions that are commonly outsourced include catering, cleaning, public relations and information systems. Service quality is critical to success, operations is viewed as a commodity and frequently outsourced, and partnership is important in the outsourcing of systems operation. Major public and private organisations in the UK such as Inland Revenue and Rolls Royce have outsourced their information systems management to electronic data systems (EDS). At present, outsourcing is most popular in central governments and the financial services industries.
Outsourcing information systems developments will have a direct impact on information systems staff and this needs to be managed. In the worse case, staff maybe made redundant. The majority of cases an outsourcing company will agree to is to employ existing information systems staff while a core of staff remain within the organisation. This is to manage the contract or functions that have not been outsourced.
Redundancies tend to occur, because this is part of an agreement between the company and outsourcer to avoid resistance to change. Additionally, due to shortages of information systems staff, it is possible for the outsourcing company to redeploy staff if necessary. Even if staff is not made redundant, transfer of staff may cause major disruption and often resentment. One main cause maybe that staff maybe forced to sign a new contract when they transfer. While remuneration maybe better, terms and conditions may change. For example, there may be no paid overtime, or staff maybe asked to work elsewhere in the country on other outsourcing contracts