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-practices process expertise. This facilitates the design, building, training, and deployment of business processes or functions.

• Industry changes
-  High levels of reorganization 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
           -Most outsourcing contracts span several years and cause the issues discussed  above
  1. Difficulties in getting out of a contract
  2. Problems in foreseeing future needs
  3. Problems in reforming an internal IT department after the contract is finished
  • Competitive edge
          -Effective and innovation use of IT can be lost when using and outsourcing                       service provider
  • Confidentiality
          -Confidential information might be breached by an outsourcing service provider,               especially one that provides services to competitors
  • Scope definition 
          -Scope creep is a common problem with outsourcing agreements

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