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Understandably, information technology caused experts to rethink successful business models. The 1990s represent a nearly clean slate in the remodeling of business because of information technology. Scott and Morton have identified five markers that serve analysts and experts in creating the business model which now emanate from information technology outward, and links other entities and customers in a seamless way.
The markers of the revolution in corporate structure and managerial practice are multifold, but the essence of the changes can be captured by five items:
First, in terms of the classic corporate structure, the most startling of these reforms is the shift to matrix management. The traditional corporation was organized by business and/or function, with clear lines of authority and a strict division of labor. But in the new structures, there are overlapping responsibilities, and managers report simultaneously to several superiors. This organizational form was not completely unknown in the past, but previously it was largely used to compromise the choice between a function and a business structure, and the matrices were essentially composed for these two types of units.
A second reform is the increased use of managerial teams and of parallel, as opposed to sequential or iterative, decision-making processes. This is most apparent in engineering, in which the usual procedure is to pass a decision down an engineering hierarchy, starting with product engineering, then to process engineering where the equipment is designed, and finally to the industrial engineers who design the plant layout and the initial manning tables. In principle, the design can be passed back from the latter stages, but in practice, designs at one stage tend to be frozen before they move forward and are revised only when truly insurmountable obstacles arise further on....A third set of changes are the relationship between the corporation and the outside organizations with which it does business. These include both vendors and subcontractors from which the company traditionally purchases inputs into the production process, and other businesses that the company purchases in an effort to expand its product line an/or to diversify....Fourth, still another series of organizational reforms are associated with the movement to reduce, and ultimately eliminate, in-process inventory in manufacturing. This began as an effort to imitate the Japanese Kamban system in which automobile subcontractors deliver parts just in time to go into production, thereby dispensing with the warehousing that used to be required at the assembly site....Fifth and finally, these changes in corporate structure and managerial practice have been accompanied by significant changes in industrial relations. These include a decentralization of collective bargaining to the plant level; a shift in the focus of collective bargaining from the negotiation and applications of rules and procedures to the negotiation of substantive outcomes; a broadening of job classifications and permissible work assignments; a movement away from layoff and recall based on seniority toward continuous employment; the introduction of quality circles and similar forms of worker participation in production planning and shop management; a movement in compensation from rates based on job assignment to personal rates based on skill level and "knowledge"; profit sharing; and worker representation on corporate boards of directors. None of these changes should be too surprising in light of the changes in work organizations associated with the elimination of in-plant inventories, although they are an independent phenomenon not in any sense confined to those operations in which inventory policies have been changed. But like that reform and the changes affecting managerial organization and structure, they have the effect of enhancing workers' independence while at the same time reducing hierarchy and increasing the capacity and the incentive to communicate laterally across work divisions (p. 44-47)."
These five elements are the elements by which experts and analysts of the 1990s began remodeling the business models around. To accomplish outsourcing, it becomes apparent why governments and businesses have selected it outsourcing to accomplish globalization:
Its seamless binding can be done from an off-site, off-shore location without impacting the way in which the new business model emanates from the information technology.
The outsourcing does not impede the continuation of improved information technology, and, therefore, does not impede the company growth.
Outsourcing it will not prevent growth in the it industry, which will continue to expand, improve, and affect businesses from that expansion and improvement.
From this perspective, we see that outsourcing of it cannot impact businesses or consumers. It does, however, impact individual jobs and incomes projected by higher learning institutions who promoted those career paths for young American college and university students.
Globalization and Outsourcing
Globalization is an important element in the outsourcing picture. It is what drives the political and the corporate engines in the effort to outsource it jobs. Writing for Communications Review, Jeffrey M. Kaplan (2003), describes outsourcing as a "sector" of it and networking (p. 36). This description emphasizes how synonymous outsourcing has now become with the concept of it. In 2003, Kaplan cited the Yankee Group analysts, projecting:
Yankee Group predicts worldwide it outsourcing (including all kinds of network and computing functions) will grow 10-12% annually to reach $273.9 billion by 2006, and business process outsourcing to grow 12-20% annually to $500 billion. As for the new utility computing services, Gartner estimates 15% of North American enterprises will adopt them in 2003, and the market will grow from $8.6 billion in 2003 to more than $25 billion in 2006, when 30% of North American enterprises will have utility computing arrangements (p. 36)."
Kaplan brings up the very corporate argument that outsourcing saves money (p. 36); this is not debatable, because the cost of employing individuals in third world countries to do the necessary it work is inarguably significant vs. The cost of those services in the United States. Kaplan, however, provides these points that bind the savings and the pragmatic sides of outsourcing:
1. New technologies let service providers package value-added functions with managed services. Frame relay sales have clearly benefited from the addition of performance monitoring and management tools from vendors like Visual Networks and Concord Communications. Service providers are hoping that new customer premises equipment will also help get VPN, IP-Centrex, integrated messaging and other network-enabled application services off the ground.
2. Competitive pressures are forcing service providers to repackage and price their offerings to make them more attractive to customers. For instance, 67% of the BCR/THlNK strategies survey respondents who are currently using managed services, are getting them from IXCs and specialized managed service providers. In contrast, of the survey respondents who expect to consider managed services in the next twelve months, 82% will look at the services offered by ILECs, systems vendors and it service companies.
3. Buyers have become more experienced and are better able to evaluate their outsourcing alternatives. As an indication of this trend, Gartner predicts that 50% of outsourcing deals in 2003 will be considered successful by senior executives because they deliver their anticipated value, compared with only a 20% success rate in the 1990s (p. 36)."
As prevalent as business outsourcing has become, not all businesses find the advantages of outsourcing, especially small businesses which would not realize any significant bottom line advantage to outsourcing. However, and surprisingly, Kaplan found that some much larger corporations are rethinking outsourcing. Kaplan found:
AT&T has pulled back significantly from its aggressive efforts to provide comprehensive end-to-end network outsourcing services -- it no longer assumes ownership of customers' networking assets and personnel. It is now emphasizing core transport and hosting services, while partnering with Siebel Systems and other application software vendors.
MCI recently unveiled plans to emerge from bankruptcy in late 2003 with a renewed emphasis on what it calls "convergence networking." The company's MCI Advantage services include both managed services and full network outsourcing capabilities aimed at taking over a customer's entire network operation. It is also leveraging its Digex subsidiary for hosting services.
Sprint is pursuing the most ambitious network outsourcing strategy by positioning itself as the aggregator of "best-of-breed" technologies and applications. It serves as the primary sales channel and service delivery provider for its managed network and application services, while relying on software partners behind the scenes. Sprint reports that it has doubled the number of customers under management, and that its overall service revenue grew more than 20% in 2002. (the other carriers refused to report their managed service revenues for this article.) (p. 36)."
What we find are not companies opposed to outsourcing, but companies whose outsourcing alternatives are better served by not off-shoring their business. It does not change the business model that demonstrates it as the central force of the business as identified by Allen and Morton.
If you think of the Untied States and individual state governments in terms of a business, then it is more easily understood why these governments would turn to outsourcing; to save money. The public's response to government outsourcing at the state and federal levels is strongly against outsourcing (O'Meara, 2003, p. 32). The concern of people is…[continue]
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