Key Decision Factors of Outsourcing IT Functions

By Ted Suen, CIO, MTR

Ted Suen, CIO, MTR

In order to improve operational efficiency and competitiveness in the current competitive global environment, the ability to focus on core business activities and delivering the most cost-effective services and products to customers is crucial for enterprises. Outsourcing part or all of the in-house IT functions is an appropriate strategy. However, deciding whether to outsource is rather complex and difficult, and it is also a vital management process for many organizations. The major problem is figuring out the key factors that enable executives to determine which part of the IT functions to outsource to an external service provider, where to outsource, the real costs and benefits, and the risk factors that will affect the success of outsourcing.

Many enterprises have to deal with several challenges, including deriving the benefits from using emerging technologies, the shortage of skilled IT personnel in the labour market, and the risks of outsourcing to offshore locations or nearshore location. Enterprises have to understand the key determinant factors of IT outsourcing that influence enterprises in choosing IT outsourcing service providers in outsource or nearshore location.

Business executives often question the value of IT investment and many enterprises do not consider IT functions their core business. In order to allocate more resources to core business activities, enterprises aim to keep IT spending minimal.

Outsourcing the in-house IT functions to external service providers is a popular and effective solution that enterprises take to reduce costs.

“The rapid growth of emerging IT in recent years has significantly changed the way businesses engage their customers these days”

However, the rapid growth of emerging IT in recent years (for example cloud computing technology, big data analytics, Artificial Intelligence (AI), and Internet of Things (IoT) has significantly changed the ways that businesses engage their customers. Organizations are changing their view of the business values of IT; many executives now consider the technological readiness of their organizations a critical success factor in the new digital era. Corporations now face big challenges, such as dealing with the increasing complexity of information system (IS) platforms, acquiring knowledge of the latest technologies, and coming up with the required resources and investment to improve the legacy IS platforms in order to take advantages of digital opportunities. In order to derive utmost benefits from using the latest emerging technologies, IT management looks at different options in sourcing the right IT resources and services to prepare businesses for the new digital challenges. Possible options include hiring additional IT staff, using in-source contractors, outsourcing certain IT functions to external service providers, setting their own captive centres in offshore locations, and a combination of these options.

There are three main categories of key motivating factors and benefits of IT outsourcing: economic, strategic, and environmental. Among the different key motivating factors, cost reduction is always the primary factor, but the high demand for IT professionals with the latest internet technical skills is now seen as an important factor too. While some of the key determinant factors are common to many organizations, there are some unique determinant factors specific to different organizations and countries. There is a decreasing supply of IT labour, but a growing demand for IT professional personnel in many countries, in order to overcome the problem of the shortage of IT personnel, enterprises need to look for external talent and leverage cheaper labour from neighbouring countries. Many organizations in the Asia-Pacific region are using nearshore IT outsourcing services to take advantage of different benefits, including cost advantages, cultural compatibility, and non-English skills.

MTR [HKG: 0066], established in 1975, operates ten railway lines, a Light Rail network and a high-speed Airport Express link. This Kowloon, Hong Kong headquartered firm also develops residential and commercial property projects, and telecommunication services on trains and in stations