Friday 21, Aug 2020 Outsourcing
Cost reduction is the process used by companies to bring down their costs and boost their profits. Depending on a company's services/product, the strategies may vary.
Latest research provides insights into how companies can exploit IT outsourcing to generate substantial savings . At the present time, it is infrequent for a business not to outsource part of its information technology function.
IT Outsourcing will be even more common
In 2020, spending on IT services is expected to reach around 1.1 trillion U.S. dollars worldwide. The IT services market has grown by around 200 billion dollars since 2008 and is estimated to escalate by another 110 billion between 2020 and 2022.
Besides, the growth of cloud computing may make IT outsourcing even more common.
For numerous companies, reducing operating costs is a key aspiration of IT outsourcing, nevertheless not all companies become aware of such savings. Managers may not realize the foreseeable profits from IT outsourcing IT Outsourcing is becoming an Important Ally for Companies.
Furthermore, outsourcing IT can contribute to lessen other expenses such as general and administrative costs, which usually are four to five times IT budget. When directors contemplate IT outsourcing as a simple alternative for internal IT investments, this narrow focus conceal many potential cost benefits.
IT outsourcing is not a substitute for in-house IT investments, specifically investments in personnel.
Even though outsourcing is related with a remarkable reduction in non-IT operating costs, that reduction is bigger for companies that make higher internal IT investments.
Probably, this is because IT outsourcing can increase the efficiency of existing processes and free up resources. It allows to quickly implement new technologies.
Besides, in-house investments in IT should facilitate coordination with vendors, thereby they magnify outsourcing’s cost-cutting effects.
Amid the various factors of internal IT investments (hardware, software, staff, etc.), only investments in employees have a synergy with IT outsourcing in reducing non-IT costs
IT employees play a critical role in exploiting outsourcing: Not only do they ensure that the vendors keep making investments in the outsourcing relationship, but they also establish a liaison between business functions and vendors.
Countless Companies are considering IT Outsourcing
Countless companies are considering the adoption of outsourcing, offshoring or cloud computing.
Firstly, managers need to take an approach to their investments in internal systems outsourcing to gain greater benefits in terms of cost savings
Although technological outsourcing brings innumerable benefits, the most significant and the factor where it most affects is the increase in competitive advantage. Companies will not be forced to have an internal IT department and may convert fixed costs into variable or eventual costs.
Organizations, being aware of these advantages, can outsource all their IT services to take advantage of all the benefits that IT outsourcing brings them. The IT sector and everything related to technology usually requires great specialists. Most companies cannot afford to have an internal IT department as it reduces competitiveness
Likewise, they should analyze the impact of outsourcing on non-IT costs. And formulate strategies (maximizing the savings on these expenses) to get the most out of their outsourcing spending.
IT savings in areas such as marketing, sales and R&D would far outweigh increased IT spending.
Directors should remember that it is the company’s total costs, rather than just its IT costs, that mark its profitability.
Overall, IT outsourcing, makes it easier for the company to focus on the main activities that generate the company's profitability.