Deciding whether to choose an outsourced or in-house IT (insource) business model, hosting, and management of IT resources at the enterprise level are the most difficult steps an organization’s management must take. On the one hand, the work of the internal division requires significant funds from the administration, which can lead to the loss of many advantages associated with market positions. On the other hand, it will be necessary if the company accumulates the resources required to maintain competitive primacy. In any case, the management of a firm should face the issue and make the most appropriate business decision.
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The management unit should take into consideration all the necessary aspects before beginning to implement any vital changes within a company. So, what’s hiding behind the subcontracting? Let’s discuss the two most popular outsourcing models in IT.
Business Process Outsourcing
In most cases, the demand for business process outsourcing develops as a result of a corporate reorganization. Companies turn to delegation because they require a reliable tool for managing change, particularly when they are consolidating and integrating their institutions. As a result of mergers and acquisitions, firms need to unite their internal processes, and this is where outsourcing comes to their aid. All the back-office functions of the merged organizations must be built from scratch, which is why such firms turn to external service providers who are ready to assist in managing operations.
Business process outsourcing covers:
- General production services (human resource management, finance, accounting, settlements with counterparties, administration tasks)
- Supply chain management (purchasing, storage, transportation)
- Demand management processes (selection, customer acquisition, and retention, expansion of the customer base)
- Current functioning – a typical IT activity outsourcing contract includes project-specific services, ongoing resource management services, and overall operating management.
Business process outsourcing (or BPO) is the transfer of the right to own and manage any activity to a specially qualified third party that helps solve business problems. As a rule, BPO is aimed at the end result, namely, to ensure higher efficiency. Its purpose is to boost the client company’s shareholder value.
Business processes in an organization can be divided into three groups:
- Those that are not essential but are critical to the business
The basic processes are rarely outsourced, as they are the most critical to a company’s business and require the most investment. The second and third groups can be subcontracted to third-party suppliers who are ready to invest in them on behalf of the company. Processes traditionally include outsourced finance and accounting services, procurement, personnel work, and property management.
The highest rates of development of outsourcing are noticed in the field of operations management. As a rule, BPO affects non-core business processes of the organization or back-office processes that usually need information support, and the new technology base provides an opportunity to transform them.
Business Application Outsourcing
The dramatic drop in network infrastructure costs driven by the advent of the Internet and VPNs, the ever-expanding bandwidth, and new technologies to secure transactions over the Internet has created a new category of IT service suppliers — application service providers (ASPs). We can say that it is a company that manages IT solutions and provides related capabilities to many enterprises and institutions from its data center over a global network. A user organization may access the software applications of one or more ASPs via the Internet for a subscription fee.
The information system structure of a traditional company includes several applications. Application service providers help to solve the tasks performed by employees as part of their duties. For instance, they facilitate planning, analysis, coordination, evaluation, oversight, personnel management, negotiation, and representation.
Application service providers are forced to change their customer service strategies in response to demand. This can be explained by the fact that the success of such a firm depends on offering services that meet the requirements of customers. If the supplier meets the needs of customers, this will have a positive impact on its market share and profitability. If an application service provider wants to retain existing and attract new clients, it is important to focus on customer satisfaction.
Business process outsourcing is very attractive for companies because it means a new service model that includes cost-effective and efficient services that are becoming more widespread. The growing demand for BPO entails an expansion of the range of services provided by vendors.
Turning to the ASP business model, which involves the delivery of subscription-based ready-to-use products, will be an appealing option for firms suffering from high IT staff turnover, a lack of enterprise resources to maintain and update existing applications, and high operating costs related to the implementation of major IT projects.