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D13:   The Economics of Outsourcing in the Information Economy
    By Paul A. Strassmann
    24 Pages
    Date Published: 02/2004
    Online Price: $6.95

Summary

Perhaps the most crucial contemporary issue of information management is whether to outsource all or some of the information technologies or information management tasks to specialized-services firms. The issue is not a transient phenomenon; the shift from company-managed computing or company-administered information processes to outsourcing is accelerating. The decision when, how, and where to outsource is likely to be one of the few information-management issues that will be coming up for review at board meetings.

So far, there is only one good explanation that fits almost every case of outsourcing information technologies: The outsourcing corporations are trying to return to profitability by cutting employment and shifting of work where it can be performed at a lower cost.

This document presents innovative ways for measuring outsourcing. It presents different points of view how to analyze the importance of making make vs. buy decision. An illustrative case provides an example how to address the importance of making outsourcing decisions from the standpoint of the CTO, the CIO, the CEO and a hypothetical competitor.

Table of Contents

Introduction5
Rationalizations5
Anorexia7
The Brain of the Firm8
When Out-Tasking Makes Sense8
What is Outsourcing?10
The Logitech Case11
The Value Chain Perspective12
The Outsourcing Perspectives13
The Perspectives of Information Executives15
The Outsourcing Ratio17
CIO Implications20
Outsourcing and Profits22
Summary24

List of Illustrations

Figure 1 - Purchasing Constitutes the Largest Cost Component of a Firm10
Table 1 - The Value Chain Defines Outsourcing12
Table 2 - What is Outsourcing Depends on a Control Perspective13
Table 3 - Importance of Information and IT Depends on Perspective15
Table 4 - Value-Added Can be Calculated if Labor Cost is Reported18
Table 5 - External Transactions are Larger than Internal Transactions18
Table 6 - Purchase / Sales Ratio In the Global Materials Sectors19
Table 7 - Outsourcing Ratios Show a Wide Range in Value20
Figure 2 - High Outsourcing Ratios Not Associated with Profitability23

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