1 IT Sourcing Strategies Victoria Mengoh Wilmington University IST 7100: IT Policy and Strategy Prof. Kevin Berry March 23, 2022 2 IT Sourcing Strategies The first article titled, “External Technology Sourcing Through Alliances and Acquisitions: A Technology Interdependence Perspective,” explores various sourcing strategies used by firms to procure external technologies. Undoubtedly, the rapid evolution of technology makes it difficult for firms, especially in high-tech industries, to keep up. The inability to keep pace with technological changes not only reduces a company’s rate of survival but also stunts its growth. For that reason, companies frequently gain access to the most current technologies through numerous ways including: (a) developing technology independently, (b) allying with an external technology firm, or (c) acquiring another technology company (Lin & Ho, 2018, p. 1381). This article focuses more on the alliances with and acquisitions of a source firm. Alliances Technology alliances refer to collaborative arrangements between two or more independent firms where the main purpose can be to access a technological capability, exchange technology, or share R&D activities (Lin & Ho, 2018, p. 1381). An example of a great strategic alliance is the one formed between SignEasy, a leading eSignature solution, and Apple. This partnership’s main objectives were to: (a) introduce an easy-to-use and secure way to sign and send documents to hundreds of millions of iPhone and iPad users, and (b) eliminate the print-scan-fax routine for paperwork (Perez & Miller, 2019). Additionally, the decision to form this alliance was strategic for the long-term to mitigate the security risks presented by the ever-evolving technology by providing customers with an extra layer of security while they sign documents. Overall, by forming alliances, companies can: (a) maintain their competitive advantage, (b) grow their revenue, and (c) access state-of-the art technology that helps them compete with their rivals. 3 Acquisitions On the other hand, technology acquisition refers to absorbing another independent firm’s technology through purchasing the company. For example, last year, Salesforce acquired Slack Technologies for approximately $27.7 billion (Salesforce, 2021). Given that Salesforce is a global leader in customer relationship management (CRM) and Slack is commonly known for transforming how organizations communicate, this acquisition’s main goals were: (a) to create the business operating system for the present and the future world work, (b) deliver the Slackfirst Customer 360 that gives companies a single platform for connecting and communicating, and (c) create an open and extensive ecosystem that will deliver the next generation of digitalfirst apps and workflows for business (Salesforce, 2021). The decision to acquire Slack Technologies was also strategic for the long-term. In fact, Salesforce President and COO, Bret Taylor, recently acknowledged that the acquisition of Slack was going to transform their company’s vision over the next decade (Evans, 2021). Article Conclusion According to the article, the decision to either ally or acquire is based on the nature of technology interdependence between partner and focal firms’ technologies as well as how technology interdependence impacts the focal firm’s ally-or-acquire choice (Lin & Ho, 2018, p. 1382). If both firms are mutually dependent on each other for resources and knowledge, then technological acquisition is preferred to an alliance (Lin & Ho, 2018, p. 1395). If the focal firm has technology dependence advantage (the partner firm depends on the focal firm’s technology to establish competitive advantage) then acquisition is preferred to an alliance (Lin & Ho, 2018, p. 1395). Lastly, if the potential partner has technology dependence advantage (the focal firm 4 depends on the partner firm’s technology to establish competitive advantage), then alliance is preferred to acquisition (Lin & Ho, 2018, p. 1395). Article 2 The second article titled, “ The Israeli CIO’s Journey – From Insourcing to Outsourcing and Back” identifies the different sourcing strategies and highlights the factors that influence Israeli IT managers’ decision to switch from one approach to another (Aspir et al., 2019, p. 535). Information technology has and continues to play a crucial role in creating a competitive advantage, promoting growth, and ensuring the continuity of a business. Companies can procure IT services through the following sourcing strategies: Outsourcing IT outsourcing is a strategy in which firms obtain some or all of their IT infrastructures, resources, and software from external vendors (Aspir et al., 2019, p. 537). Companies can use various outsourcing models including: (a) total outsourcing which happens when firms outsource all their IT services, (b) selective outsourcing which occurs when organizations outsource some of their IT services, (c) offshoring which involves relocating a company’s business operations to a different country, and (d) onshoring which involves relocating an organization’s business operations to a geographic location that is within its national borders (Aspir et al., 2019, p. 537). Insourcing IT insourcing, like the name suggests, involves using one’s own assets , skills, and other resources to accomplish tasks such as operating and developing information systems (Aspir et al., 2019, p. 539). The main drivers of this strategy include the need to differentiate and create a 5 competitive advantage, prevent loss of knowledge and skills to a partner firm, and maintain complete control of core business functions (Aspir et al., 2019, p. 539). Backsourcing IT backsourcing is the process in which companies revert to insourcing IT services that had been previously outsourced to one or more vendors (Aspir et al., 2019, p. 539). Depending on the agreement, firms can choose to return part or all the outsourced services to an in-house setting either before or after the contract ends. Companies can apply this approach as a result of : (a) changes in strategic direction, (b) failure to achieve the goals listed on the outsourcing contract, (c) change of the vendor’s staff, management, or technology, and (d) conflict between the firm and vendor (Aspir et al., 2019, p. 539). Article Conclusion The research in the article revealed that outsourcing is still the most preferred approach in Israel. However, 90% of the CIOs interviewed stated that they considered backsourcing their companies’ software development and IT maintenance services to retain control of some of the core business operations (Aspir et al., 2019, p. 549). Overall, the factors that were important in all three sourcing strategies included the ability to retain or regain control as well as reduce labor costs. In this article, the Israeli managers’ decision to outsource, insource, and backsource was tactical for the short-term. This allowed them to shift from one strategy to another based on whether they met their goals or not. Comparison and Contrast The sourcing approaches (acquisition and alliance) mentioned in the first article mainly focused on external technology sourcing strategies while those mentioned in the second gave a 6 holistic view on the different outsourcing models, insourcing, as well as backsourcing strategies. The main difference between the sourcing strategies mentioned in both articles is the end-goal of each. For instance, the purpose of acquisitions and alliances is to promote external growth and present companies with the opportunity to tap into market segments they would have otherwise not had access to. On the other hand, companies typically outsource to reduce labor costs as well as improve company focus on critical business operations. Further, the end-goal of insourcing is to retain control of core business functions. Lastly, the main aim of backsourcing is to regain control of previously outsourced activities as well as improve quality. All strategies discussed in both articles can only be successful if they align well with an organization’s goals, generate revenue, promote growth, and offer longer-term cost savings. Additionally, they all carry risks including but not limited to reputational damage, language barriers created by cultural diversity, potential for weak management, and hidden costs associated with each strategy (Farnham, 2017) Conclusion In conclusion, the different IT sourcing strategies mentioned above have different benefits and drawbacks. The decision to choose one over the other should be based on your company’s vision, mission, and values. To me, the most effective sourcing strategy of the five discussed was outsourcing. This is because it allows employees to focus on accomplishing the tasks that add more value to their firm’s bottom-line. It also offers different models that companies can choose and benefit from. Additionally, it is not only cost effective but also scalable. Simply put, it allows companies to grow their workforce without increasing overhead costs. Ultimately, the only wrong information technology sourcing strategy is the one that does not align with your company’s goals. 7 References Aspir, T., Gafni, R., & Gordoni, G. (2019). The Israeli CIO’s journey – from insourcing to outsourcing and back. Israel Affairs, 25(3), 535–553. https://doi.org/10.1080/13537121.2019.1593656 Evans, B. (2021, August 30). 10 reasons why Salesforce buying slack is the deal of the Decade. Acceleration Economy. Retrieved March 23, 2022, from https://accelerationeconomy.com/cloud/10-reasons-why-salesforce-buying-slack-is-thedeal-of-the-decade/ Farnham, L. (2017, June 26). The risks and rewards of IT/is insourcing and outsourcing. Academia.edu. Retrieved March 23, 2022, from https://www.academia.edu/33659044/The_Risks_and_Rewards_of_IT_IS_Insourcing_and _Outsourcing Lin, L.-H., & Ho, Y.-L. (2018). External technology sourcing through alliances and acquisitions: A Technology Interdependence Perspective. Total Quality Management & Business Excellence, 29(11-12), 1381–1401. https://doi.org/10.1080/14783363.2016.1262740 Perez, M., & Miller, T. (2019, October 23). SignEasy announces major app modernization with support for IOS 13 and iPadOS. SignEasy. Retrieved March 23, 2022, from https://www.prnewswire.com/news-releases/signeasy-announces-major-appmodernization-with-support-for-ios-13-and-ipados-300943694.html 8 Salesforce. (2021). Salesforce completes acquisition of Slack. [Press release]. Retrieved March 23, 2022, from https://www.salesforce.com/news/press-releases/2021/07/21/salesforceslack-deal-close/
