IT Outsourcing: Evaluating Decisions Beyond Financial Criteria
This paper examines the practice of IT outsourcing and the factors that must be considered when evaluating outsourcing decisions. While standard financial investment information and criteria are important, the paper argues they are insufficient on their own. Key success factors — including defining clear objectives, stakeholder consideration, vendor understanding, contract negotiation, and performance assessment — are identified as equally critical. The paper also addresses the shareholder perspective, noting that investors evaluate IT outsourcing based on firm type and outsourcing scope. It concludes that comprehensive financial analysis, combined with strategic and operational considerations, is essential for sound IT outsourcing decisions.
- Introduction to IT Outsourcing: Defines IT outsourcing and its common business rationale
- Evaluating IT Outsourcing Decisions: Argues standard financial criteria are insufficient alone
- Critical Success Factors Beyond Financial Criteria: Lists key non-financial factors for outsourcing success
- Governance, Vendor Management, and Goal Definition: Covers planning, vendor control, and clear objective-setting
- Shareholder and Investor Perspectives: Examines how equity and debt affect outsourcing decisions
- Conclusion: Restates need for comprehensive outsourcing evaluation
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What makes this paper effective
- The paper takes a clear, arguable position — that standard financial criteria alone are insufficient for evaluating IT outsourcing decisions — and builds each section toward supporting that claim.
- It integrates a shareholder and investor lens throughout, grounding an IT management topic in financial accountability and business strategy.
- The discussion moves logically from defining the practice, to identifying its risks, to outlining the additional factors needed for success, giving the argument a coherent progression.
Key academic technique demonstrated
The paper demonstrates the technique of claim qualification — it does not reject the value of standard financial criteria but instead argues they are necessary but not sufficient. This nuanced positioning, supported by citations from practitioner-oriented sources, strengthens the credibility of the central argument without overstating it.
Structure breakdown
The paper opens with a broad definition of IT outsourcing and its common rationale, then narrows to the evaluation question. The body identifies limitations of financial criteria alone, enumerates critical success factors (objectives, stakeholders, vendors, contracts, performance incentives), and addresses the planning and governance processes involved. A dedicated section examines the shareholder perspective before a concise conclusion restates the central thesis. The structure follows a classic problem–analysis–conclusion format suited to business topics.
Introduction to IT Outsourcing
The outsourcing of IT operations can be described as the process of sub-contracting responsibility for some or all parts of an IT function to a third-party service provider that handles the work. This practice has been present for several years since the commencement of business computing, as many firms use it for functions ranging from infrastructure to software development, as well as support and maintenance. One of the major reasons for the widespread use of IT outsourcing is that it is perceived as a means of reducing costs, enhancing operational flexibility, minimizing management overhead, and increasing service levels. Another reason attributed to this practice is that IT is not always considered a core competency of the firm, and third-party companies may be able to provide better and cheaper services. However, a company's financial manager should carefully evaluate investment in technology, especially from the shareholders' perspective.
References
Jones, W. (2001, March 1). Planning for an outsourcing evaluation. Retrieved July 5, 2012, from
Klepper, R., & Jones, W. (1999, March 25). Outsourcing information technology systems and services. Retrieved July 5, 2012, from
Kowalczyk, S. (2009, March 8). Government funding, outsourcing, and financial decisions. Retrieved July 5, 2012, from
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