CHAPTER 15 : OUTSOURCING IN THE 21ST CENTURY

CHAPTER 15 : OUTSOURCING IN THE 21ST CENTURY

Outsourcing Project

• Insourcing (in-house-development) – A common approach using the professional expertise within an organization to develop and maintain the organization’s information technology systems
• Outsourcing – An arrangement by which one organization provides a service or services for another organization that chooses not to perform them in-house

• Onshore outsourcing – engaging another company within the same country for services
• Near shore outsourcing – contracting an outsourcing arrangement with a company in a nearby country
• Offshore outsourcing – using organizations from developing countries to write code and develop systems
• Big selling point for offshore outsourcing “inexpensive good work”

• Factors driving outsourcing growth include;

• Core competencies- many companies have recently begun to consider outsourcing as a means to fuel revenue growth rather than just a cost-cutting measure.
• Financial savings- it is typically cheaper to hire workers in China and India than similar workers in the United States
• Rapid growth-an organization is able to acquire best practice process expertise. This facilitates the design, building, training, and deployment of business processes or functions.
• Industry changes- high level pf organization across industries have increased demand for outsourcing to better focus on core competencies.
• The Internet- the pervasive nature of the Internet as an effective sales channel has allowed clients to become more comfortable with outsourcing.
• Globalization- as markets open worldwide, competition heats up. Companies may engage outsourcing service providers to deliver international services

• According to PricewaterhouseCoopers “Businesses that outsource are growing faster, larger and more profitable than those that do not”
• Most organizations outsource their noncore business functions, such as payroll and IT

Outsourcing Benefits

Outsourcing benefits include;

• Increased quality and efficiency
• Reduced operating expenses
• Outsourcing non-core processes
• Reduced exposure to risk
• Economies of scale, expertise and best practices
• Access to advanced technologies
• Increased flexibility
• Avoid costly outlay of capital funds
• Reduced headcount and associated overhead expense
• Reduced time to market for products or services

Outsourcing challenges

Outsourcing challenges include;

• Contract length

• Difficulties in getting out of a contract
• Problems in foreseeing future needs
• Problems in reforming an internal IT department after the contract is finished

• Competitive edge
• Confidentiality
• Scope definition