The difference between IT Core and IT Strategic is either outsourcing or management respectively. Below is the highlight of how to infer the actual differences between the two keywords.
Over the years, there has been a huge increase in the outsourcing market on a global scale, with no sign of getting plummeted. In 2018, the global outsourcing market amounted to 85.6 billion U.S. dollars while the global business process outsourcing market size is expected to reach USD 343.2 billion by 2025.
Outsourcing has been in inception from time immemorial but came to limelight in the 1990s through IT outsourcing. Another recent development in outsourcing is the business process outsourcing which has really expanded over the years. The aim of business process outsourcing is to concentrate mainly on the realization of total business benefits, whether enhancing an organization competitive positive in the market place or improving shareholder returns.
In the time past, outsourcing was regarded as a way of reducing costs. But today it has developed into a more strategic management tool.
in view of this, this article will be divided into three sections:
- Reasons for Strategic outsourcing
- Method of linking outsourcing to business strategy
- Case Study in progress of a large strategic outsourcing relationship.
Reasons for Strategic Outsourcing
The difference between an outsourcing arrangement and other business arrangement is the transfer of ownership of organization business activities. An outsourcing arrangement involves the transfer of the factor of production (the People, the Facilities, the Equipment, and Technology) to the service provider. The factor of production is later used by the service provider to provide service back to the organization.
Furthermore, outsourcing arrangement can either be tactical or strategic. Strategic outsourcing is not driven by a desire to solve a practical problem. Unlike tactical outsourcing which is driven by a desire to solve practical problems.
Tactical outsourcing is evident in an organization that outsource it IT structures in other to keep 5-10% on the cost of operation. Strategic outsourcing can bring some sorts of changes which includes:
- Achieving a gain in competitive advantages
- Restructuring the organization in the market place
- Accomplishing a drastic increase in share price
Method of Linking Outsourcing to Business Strategy
The process of outsourcing came into being a very long time ago but came into limelight not quite long. A perfect example of a company that successfully linked outsourcing to their business is Coca-Cola.
In addition, the extent to which the function or process contributes to the organization’s competitive advantage and whether the organization has the strength to perform it internally should be considered in order to assess whether outsourcing is appropriate: This method of linking outsourcing to business ensures proper conduct of a systematic review of internal business activities by establishing a consistent strategic basis for the decision making process.
The perfect example of a company that adopted strategic outsourcing is J. Sainsbury’s PLC. J. Sainsbury’s plc is a company with roughly 150, 000 employees. During the 2000 spring, the company experienced a huge loss by 40 % from the previous three years. As a result of this, the company faced a competitive threat from its counterparts.
Sainsbury’s took a huge step to fine-tune its company by strategically entering a seven-year outsourcing arrangement with a management consulting company which summed about $2.7 USD. The consulting company decided to take control of all the major aspects of Sainsbury IT infrastructures, including the company employees.
In addition, for the company to succeed, the organization must be transformed in all ramifications. Starting with its mode of internal operation to customers’ relationship and the way it deals with the cooperative relationship with its service provider.
In conclusion, strategic outsourcing is not bogus, but one must be able to take cognizance of the strategic value that outsourcing can generate.