Today's competitive and demanding environment has forced players in the marketplace to be more efficient, to emphasize on a leaner organization and continuously innovate new procedures to be ahead of competitors. Adding final consumer value to the product or service in the form of lower prices, quality and better service has become an essential requirement in the global marketplace. The purpose of this study is to present a theoretical framework for outsourcing actions as a guideline for companies on why and how to outsource. It gives an insight into Information Systems (IS) outsourcing as a new and promising trend in the global environment while presenting the main IS areas of outsourcing as well as its advantages and disadvantages. In order to effectively implement outsourcing, commitment from top to bottom management, and understanding of all the stages and implications of outsourcing are required. The results and overall reasons of outsourcing should focus on adding value to the final consumer of the product or service. By achieving lower logistic costs and higher level of quality and expertise, the results can be used to add value to the consumer.

In the IT world, outsourcing means turning over a firm's computer operations, network operations, or other IT function to a provider for a specified time. In 1989, outsourcing became a legitimate management strategy by Chief Information Officers (CIOs). Until that time, the companies outsourcing their operations were those that were poorly run. However, in 1989, Kodak outsourced its well-run Information System (IS) operations to become more competitive. That move by Kodak surprised the top executives across the world. Today, CIOs are required to investigate and identify the operations which are to be outsourced and should ensure that they are performed effeciently and effectively as they would performin-house. They also should be able to identify the activities which can not be performed in house and outsource such activities.

IT outsourcing essentially began with `big bang' deals or mega deals which consisted of outsourcing all the company's data center operations up to 10 years. These deals involved selling of existing equipments to the outsourcer, transferring all software licenses, moving significant numbers of inhouse IS personnel to the outsourcer's payroll, negotiating how the outsourcer would help in the transition and which party would carry which costs, establishing desired service levels and ways to measure performance, and specifying every single service to be provided because if it was not in the contract, it would be an added cost.

In those early days, the goal of these large data center contracts was purely financial. Companies wanted to remove the huge IT infrastructure investments from their books and shift those fixed costs to variable costs; and they wanted to save money of about 15%. Companies investigated that outsourcing is a way to reduce the labor costs. With this the organizations can achieve savings to a great extent by accessing best resources without any additional fixed investments internally. An organization can get more freedom and flexibility and can focus on core competencies. The main focus on outsourcing in the early stages was improving efficiency and effectiveness. But initially the view on cost reduction was narrow which was directed to the budget on IT which created confusion in the direct, indirect, variable, fixed costs, marginal costs and was due to inexperience in forecasting the effects on the revenue. But later t he outsourcers leveraged licenses across clients, as they shared expertise across clients, and they invested in productivity tools that made them more efficient (McNurlin and Barbara, 1998).

Several problems occurred, though. An `us versus them' mindset often set in because neither the clients nor the outsourcers handled the transition well. A lot of finger-pointing took place as outsourcers, tried to charge services that clients thought were included in the contract. In addition, service levels did not always live up to expectations or interpretations of the contract language differed. In other words there was mishandling and miscommunication with the clients and other stake holders.

Systems Management Journal, Information Systems Outsourcing, IT Infrastructure Investments, IT Outsourcing Industry, International Trade Commission, Information Resources, Information Systems Groups, Data Processing Groups, Resource Dependence Theory, Transaction Cost Theory, Data Communications Technologies.