FINANCING ORGANIZATIONAL TECHNOLOGY

Financing Organizational Technology

It is absolutely essential for any outsourcing decision to be based on financial investment information and criteria, in addition to measuring the long-term implications of IT investments on a company's debt or equity structure. This is critically important because the majority of enterprise deployments of IT system require capital expenditures (CAPEX) which must show a suitable Rate of Return (ROR) to substitute such a large investment in technology-related systems and services (Lacity, Khan, Yan, Willcocks, 2010). The decision to outsource any significant IT investment must also be based on a solid set of assumptions and projections relating to the potential cost reduction and revenue gain associated with an IT project streamlining a core business process (Moon, Yao, Jiang, 2010). The decision to outsource distributed order management system development and use for example would significantly reduce the cost of operations for any company, yet the potential risks of getting out of step with customers and their orders would need to also be taken into account.

Creating Value Through The Use of IT

At its most fundamental level, IT investments must deliver significant valuew by making a company more effective serving customers while also increasing its internal efficiency and performance in the market (Lacity, Khan, Yan, Willcocks, 2010). The pace of change within markets are accelerating, which makes it increasingly difficult for companies to stay in step with their customers while also adopting IT technologies to continually improve their internal systems performance as well. Adding to this pressure are the rising costs and continual pressure from suppliers for concessions on delivery schedules, which makes the production process even more difficult to keep in balance from a profitability standpoint. The use of outsourcing to solve these challenges continues to be proven over time, enabling companies to be more customer-centric in their approach to managing supply chains to response and quality levels, not just price alone (Moon, Yao, Jiang, 2010).

Companies who are successful with their outsourcing strategies often begin with the decision to offload all tasks that are routine, easily automated, and not absolutely critical to their business models and value chains (Moon, Yao, Jiang, 2010). This delivers several critical benefits to any business, starting with the ability to focus more effectively on their core business model first so that greater value can be delivered to customers. Secondly, offloading these tasks also leads to a more focused approach to expansion into adjacent and new markets over time as well (Moon, Yao, Jiang, 2010). Third, the more advanced aspects of how IT is being used can be more aggressively pursued, creating analytics, business intelligence and reporting that can better guide strategies over time than would have been possible in the past. All of these benefits would not have been possible however without the outsourcing strategies being firmly grounded in a financial analysis of their value and ROI over the long-term (Lacity, Khan, Yan, Willcocks, 2010). The incremental revenue growth and continued expansion of any business is predicated on how effectively they can transition from one set of challenges to the next, seeking a means to create greater value by addressing more customer needs effectively while broadening their base of support in customer bases globally. Being able to attain this level of market performance is predicated on the ability to form joint ventures, devise intelligent and informed offshoring and outsourcing strategies, and decide which areas need to be outsourced or not (Mudambi, Venzin, 2010).

The Impact Of Outsourcing On the Structural Integrity Of IT In Enterprises