Outsourcing it a Management Strategy Term Paper

Excerpt from Term Paper :

Contracting officers today must have the skills or competencies required to become the business leaders of the future (Steele 2000)."

An article found in the ABA Banking Journal asserts that Chief Information Officers are interested in it outsourcing because companies are able to acquire it skill sets that may not be present at the internal level. In this article Siemers (1995), explains that One of the reasons CIOs believe that outsourcing is extremely important is the ability to supplement the existing it skill set, still characterized by the legacy environment, with the latest expertise in enabling technologies that provides direct benefits to the business...Staying current with the changes in technology, even as a person's sole responsibility in an organization, is extremely difficult. Therefore, the emphasis on strategic planning and partnering with a vendor well versed in high-technology is more crucial than ever (Siemers, 1995),."

As you can see, the acquisition of new skill sets is essential to the development and maintenance of a proficient it System. Businesses have come to the realization that acquiring such skill sets is difficult without the utilization of an outside vendor. The acquisition of such skill sets allows a company to operate efficiently and compete in the marketplace.

Business Acquisitions

AT&T and IBM

Another type of acquisition that has taken place because of it outsourcing is business acquisitions; Over the years, there have been several high profile acquisitions that have taken place. One of the largest acquisitions involving it outsourcing took place in 1998 between at&T and IBM. In this particular acquisition at&T acquired IBM's Global Network business for $5 billion and the companies entered into outsourcing contracts with one another (Acquisition: AT&T to Acquire IBM's Global Network Business for $5 Billion., 1998).

The article explains that IBM outsourced a large portion of its global networking needs to at&T. In turn at&T outsourced certain data center management operations and applications processing to IBM (Acquisition: AT&T to Acquire IBM's Global Network Business for $5 Billion., 1998).The article explains that "The IBM Global Network business at&T will acquire serves the networking needs of several hundred large global companies, tens of thousands of mid-sized businesses and more than 1 million individual Internet users in 59 countries. The acquisition boosts at&T's strategy to rapidly increase the company's revenue, especially at its fast- growing networking services unit, at&T Solutions. About 5,000 IBM employees will join at&T as part of the acquisition (Acquisition: AT&T to Acquire IBM's Global Network Business for $5 Billion., 1998)."

The article explains that the purpose behing the acquisition is to promote growth and expension for at&T (Acquisition: AT&T to Acquire IBM's Global Network Business for $5 Billion., 1998). The outsourcing of important and costly it services will allow at&T to devote time and resources to the development of new products and services. Likewise the acquisition will allow IBM to research new products. The article explains

The acquisition of IBM's global data network will accelerate our ability to deliver IP-based services to global customers. It will give us a sophisticated new platform for revenue growth." By providing customers with more attractive global services, Armstrong said the acquisition will enable at&T to compete more effectively with strong rivals for the provisioning of global managed data network services, including IP. "We are delighted that at&T will be the new home for our Global Network operation," said IBM Chairman and CEO Louis V. Gerstner, Jr. "With this agreement, the network will receive the management focus and resources necessary to maintain its standing as a world-class provider of connectivity to IBM and millions of customers (Acquisition: AT&T to Acquire IBM's Global Network Business for $5 Billion., 1998)."

This particular acquisition involved two of the largest and most well established corporations in the world. It is clear that the acquistion will be benefical to both companies and allow them to expand in the long run. Further research indicates that acquisitions also take place among corporations of all sizes.

CACI and American Management Systems

Another such acquisition took place in April of 2004 when CACI international acquired millions in contract for the Social Security Administration and the acquisition of the defense and intelligence unit of American Management Systems Inc. (Higgins, 2004). CACI has several subsidiaries, one which is CMS an information technology firm. This firm will now handle the technical support for the government agencies. The article reports "CACI paid $415 million in cash for the unit, which is expected to expand the company's presence in the defense, intelligence and homeland security government markets, said Chief Financial Officer Steve Waechter...The contract and recent acquisitions "are setting CACI up for continued double-digit growth that is in line with what they had forecasted (Higgins, 2004)."

The author goes on to explain that this acquisition has been wrought with caution because of the perceived slowdown in the amount of government technology spending (Higgins, 2004).

Nevertheless, with these acquisitions CACI is set to acquire over $1 billion in revenues by the fiscal close of 2004 (Higgins, 2004).

Additionally, forecasters conceded that the company would meet it target stock price of $50 per share (Higgins, 2004).

Systems Management Specialists (SMS) and the SMS business unit

In February of 2003 Business Wire reported that Systems Management Specialists (SMS), in colaboration with the Los Angeles-based private equity firm of Riordan, Lewis & Haden (RLH), acquired the SMS business unit from Marconi, plc. The article explains that Sytems Management Specialists is the preeminint supplier of classical it outsourcing for both medium and large firms (Systems Management Specialists Former Management Leads Acquisition of Classical it Outsourcing Firm, 2003).

SMS has existed as an outsourcing specialist for over 20 years. The organization has effectively aided companies in the round the clock operation of mission-critical information systems and offers firms a variety of computing resources and technology access on-demand (Systems Management Specialists Former Management Leads Acquisition of Classical it Outsourcing Firm, 2003) the article also asserts,

Customers who use SMS' outsourcing services achieve a variety of strategic business benefits including immediate cost savings, it expense predictability and enhanced levels of performance and availability. SMS offers an integrated call center providing 24-hour access to sophisticated monitoring, problem diagnosis and resolution capabilities (Systems Management Specialists Former Management Leads Acquisition of Classical it Outsourcing Firm, 2003)."

The article also explains that SMS has provided it outsourcing for firms such as Boeing Co., Beckman Coulter Inc., Countrywide Financial Corp., Fluor Corp., Scripps Health, Nestle USA, and Fidelity National Information Solutions. The report explains that the SMS business unit was purchased by Marconi, plc in June 2000. The private equity firm of RLH, which aided in the acquisition "has been successfully identifying and investing in growing middle-market companies based in California. RLH was attracted to this opportunity because of the strong growth trend in the outsourcing services sector and the proven track record of the SMS management team (Systems Management Specialists Former Management Leads Acquisition of Classical it Outsourcing Firm, 2003)."

The article contends that SMS is optomistic about the merger. Adding that the increase in the comlexity of information technology will increase the need for it outsourcing (Systems Management Specialists Former Management Leads Acquisition of Classical it Outsourcing Firm, 2003). Additionly, the company hopes that the expertise that it has already acquired will aid it in attracting new clients.

Reccomendations for managers

Surely this research has illustrated that in certain scenarios thatere is a dire need for it outsourcing. One of the most signifigant reasons why this outsourcing is needed is the rapid change in technological advances and an aging workforce. With many American workers reaching retirement age, acquiring new skill sets may not be feasible or cost effective. For this reason it outsourcing has become a viable alternative.

In addition, outsourcing can provide tremendous value to customers and cut costs dramatically. Outsourcing allows a company to downsize and add value simulatneously. In many cases it also allows for the utlization of more advanced technologies.

Though outsourcing can be a valuable tool, managers must take into consideration all of the scenarios that might arise. A managers first step should be to truly evaluate wether his/her firm need to outsource the it function. The manager should askquestions such as;

Will the cost savings justify such a program?

Are there signifigant hidden costs that may arise?

Is the company prepared to lay off valuable workers that have advanced skill sets; and will the goals of the company be met more rapidly if the company outsources it?

Will it outsourcing prove beneficial to customers or the overall efficiency if the organization?

Can the company withstand the decrease in communication that will occur as a result of outsourcing?

If the manager can answer yes to all or most of these questions they can themn attempt to find a vendor that can meet the it needs of the company. This is essential because vendors specialize in different aspects on an ienterprise. For instance some vendors simply handle cuatomer service while…

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