IT outsourcing is the sub-contracting of certain information technology tasks and functions to external IT service providers. The firms that take up such IT jobs are called IT outsourcing companies. The type and scope of work these companies do, vary with the project demands and the client requirements (the firm that outsources the work) but the range of work is a wide one.
Services like consulting, software development, testing, deployment, web development and hosting, networking and communications, and support comprise some of the most common jobs associated with these companies. If the support work is performed at the site of the client, it is called onsite outsourcing. If the work is carried out remotely from another location other than the client site, it is called remote outsourcing.
Types of IT outsourcing Services
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Offshore outsourcing
Most businesses outsource their work to IT outsourcing companies in foreign countries for obvious business benefits like reduced costs and tax savings. Such type of outsourcing is called offshore outsourcing.
Onshore outsourcing
When a business outsources work to a service provider in the same country as it is located in, it is called onshore outsourcing.
Nearshore outsourcing
If a company appoints another firm situated in a bordering country, it’s called nearshore outsourcing.
Types of IT outsourcing engagements
There are 3 primary models of engagement that are followed by the client and IT outsourcing company on outsourced projects. These are
Fixed-Price Model
In this type of engagement, the project cost is pre-determined and hence, it is suitable for projects that have well-defined deliverables and timelines. If there is a significant change in the scope of work during the project course, both sides mutually agree to revise the costs and work implications.
Time and Material Model
If the project scope isn’t well-defined at the start, companies usually resort to the Time and Material Model where the vendor bills the client on a timely basis (usually hourly) for the resources used. This model is usually followed in projects like large-scale assignments where the work specifications keep evolving.
Offshore Development Center
These are usually the extension of the client’s team maintained at different locations in the world. Such development centers may be owned and managed by the client or by an offshore development organization. Benefits of having an offshore development center include low operating costs, access to competent and dedicated resources, complete transparency in monitoring work progress, etc.
Reasons for subcontracting work to IT outsourcing companies
Following are the primary reasons why companies are increasingly partnering with IT outsourcing companies to carry out some of their important activities:
Costs: Most companies in the US and Europe outsource their work to Asian firms because of the cost benefits that these firms provide. Doing the same work using their own resources is usually a very expensive affair because of the high costs associated with manpower and equipment.
Expertise: IT outsourcing companies have dedicated resources that can be deployed quickly for carrying out specialized IT jobs. This allows businesses to focus on core areas and work on future growth and eliminate the need to worry about making arrangements for training their own IT staff.
Efficiency: Because IT outsourcing companies have specialized resources cut-out for IT jobs, their efficiency in meeting strict project deadlines is usually high. This is particularly helpful for time-consuming tasks and projects that usually drain the resources of businesses.
Flexibility: One of the primary advantages of getting work done by outsourcing companies is the flexibility that they offer in terms of manpower. Resources can be added or released as per work phases and the same benefit is reflected in the amount billed to the client.