An Information Technology Services Outsourcing Alternative: A Business Model

By Lester, Donald L.; Menefee, Michael L. et al. | Journal of Business and Entrepreneurship, March 2010 | Go to article overview

An Information Technology Services Outsourcing Alternative: A Business Model


Lester, Donald L., Menefee, Michael L., Pestonjee, Daanish, Journal of Business and Entrepreneurship


ABSTRACT

An alternative to offshoring is domestic sourcing, or outsourcing in one's home country. A subset of domestic sourcing, known as rural sourcing, is emerging as a significant option within the information technology industry, either as a standalone delivery model or as part of a global outsourcing solution. This article presents the example of one rural sourcing firm's achievements through a technology based partnership with a rural university. The advantages of rural sourcing-such as prevention of American job losses to other countries, promotion of economic development in rural areas, and reduced geopolitical risk for firms-are discussed, along with the opportunity for social responsibility. Suggestions for the future growth and emerging opportunities of this niche sector are also presented.

INTRODUCTION

For over two decades management researchers have lamented the outdated fundamental structure of American businesses. The overreliance on a functional view of the organization, which divides workers into job-related divisions such as marketing, accounting, and production, has led to the erosion of many firms' competitive edge over foreign competition. Combined with rising labor and energy costs, mature or quickly maturing industries, increased government regulation, foreign competition, and crippling legacy commitments, this structural problem has forced U.S. businesses to respond. The primary response has been outsourcing.

Harrison and McMillan (2006) provide workable definitions of outsourcing and offshoring, two terms that have been somewhat confused over time. When one firm purchases inputs or services from another firm, it is outsourcing. Offshoring is when a firm purchases inputs or services from a foreign subsidiary or through an agreement with another foreign firm (Harrison & McMillan, 2006). As Espino-Rodriguez and Padron-Robaina (2006) note, outsourcing as a business term became common in the late 1980s, referring directly to the subcontracting of organizational information systems. While the term has been expanded to include a variety of business functions not performed in-house, this article will focus on the subcontracting of information technology services.

Current trends in outsourcing are examined, and an alternative to the often-maligned option of outsourcing known as rural sourcing is presented. This business model, finding limited but promising success, provides suggestions for keeping American jobs at home without losing the competitive edge that organizations believe they are acquiring through offshoring.

OUTSOURCING

What Is Outsourcing?

In broad terms, outsourcing refers to the practice of contracting out specific organizational functions and activities (e.g., accounting, customer support, human resources, etc.) to independent external firms, rather than performing those functions in-house. Put another way, outsourcing is the acquisition by one firm of certain value-creating activities by means of entering into marketbased contractual arrangements with other independent firms (Doh, 2005; Gainey & Klaas, 2003).

In today's competitive environment, global outsourcing involves having the right mix of onshore, nearshore, and offshore delivery options to achieve the best possible combination of low cost, productivity, and lower risk levels such that competitive advantage is maximized. Choosing where to locate operations is not a new problem. There are even separate theories, called Location Theories, that address questions of which economic activity should be located where and why. With the spread of globalization, the Internet, new technologies and logistics, choosing a location is taking on new significance as managers are constantly evaluating what site is the most feasible for delivering products and services to customers. When managers are considering an outsourcing strategy by using third party or captive centers, offshoring is the normative choice. …

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