Surveying the Risks and Benefits of IT Outsourcing Bjarne Berg Student ID: XX20 Due: April 10th, 2006 Chapter-8 Managing Operations “Surveying the Risks and benefits of IT Outsourcing”. G. Reza Djavanshir, Dec. 2005, IT Pro, IEEE Computer Society pp32-37.

Background In September 2003, Natalia Levina and Jeane Ross, did a survey of a set of vendors to explore the value propositions proposed by the vendors when selling outsourcing services. This follow-on study explores the value propositions from the buyer’s perspective and looks for divergent propositions. The survey was conducted by mailing an instrument to 303 senior managers in IT companies in North America and Western Europe. Of these 45% respondent yielding 137 responses, of which 114 was valid (38%).

Perceived benefits of offshoring and outsourcing Respondents rated the factors from 1.0 to 5.0 (5.0 being the most important factor to consider when offshoring and outsourcing) The last of the top-5 reasons given for outsourcing was the access to the host country’s universities. This was due to the fact that less the 10% of students in the US now graduate with a degree in engineering (communication accounts for over 30% of graduates). The first finding was that the number one reason for outsourcing by the companies was to reduce labor costs. This is in-line with the findings from E. Carmel and P. Tija (2005) which estimated that costs savings is between 15% to 40% for outsourcing alone.

Job categories that will likely grow in Europe & US due to outsourcing An argument has however been made that the job growth in Western Europe and USA in the IT field will continue as more new jobs are created than those lost to outsourcing. The projected job loss by 2015 is 31 million (US Dept. of Labor), while the growth of alternate IT jobs is expected to be around 32.8 million, a net of 1.8 million new jobs over the next 10 years.

Offshoring outsourcing risks The researchers also found that there were 5 core risks to the outsourcing effort. The primary of these risks were the political risks (rated 4). This refers to the risk that some countries can change their political systems rapidly and that can lead to changing business environments and laws (i.e. Russia increased taxes retroactively against a Pepsi manufacturing plant in Russia after they saw the profit the company made).

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