Information Technology (IT) outsourcing is the outsourcing of information technology and systems operations to a suitable third party technology solutions provider. Companies outsource their IT development and management tasks to vendors to achieve benefits such as financial savings, technical capabilities and marketplace agility. The regular advantages of outsourcing such as focus on core competency, cost and quality are the driving factors for IT outsourcing as well. According to the School of Public and Environmental Affairs, Indianapolis, advantages of IT outsourcing include renovation of business processes through IT, cost savings, faster deployment, access to IT skills and employee flexibility.

Financial savings is a crucial driver for IT outsourcing as in the case of Business Process Outsourcing (BPO) and Customer Service Outsourcing (CSO). According to a survey conducted by INS, a business and technology consulting and software solutions firm, lower costs was the most vital reason given by respondents for choosing the outsourcing option for IT infrastructure services. The survey findings, which were released in May, 2005 are shown in Figure 1.

Figure 1: Reasons for outsourcing IT infrastructure services Source: INS

IT outsourcing is a rapidly growing industry. Datamonitor and Everest Consulting have estimated the global IT outsourcing market to be worth USD 163 billion in 2004, showing a growth of 37 percent over the 2003 figure of USD 119 billion. Growth in the IT outsourcing market is expected to remain high in the coming years as well. Gartner has estimated that the overall spending in the global IT outsourcing market will touch USD 253.1 billion in 2008. Large players have a huge share in the IT outsourcing market, though it has decreased from 2003 to 2004.

Over the years IT outsourcing has undergone numerous changes. Offshore IT outsourcing is no more a buzz word but an accepted industry practice. Similarly companies are also changing their approach to managing outsourced IT projects. Earlier IT outsourcing was viewed as a procurement task where equipments and services were bought, management relationships were commanding in nature and providing goods was the goal of the management. However, companies are moving to a partner and develop relationship in stead of the earlier order and deliver relationship. Equipments and services are now leased and goal of the management has shifted to services.