CHAPTER 15 :OUTSOURCING IN THE 21st CENTURY

LEARNING OUTCOMES

19.1 Describe the advantages and disadvantages of insourcing ,outsourcing ,and offshore outsourcing.

19.2 Describe why outsourcing is a critical business decision.

1.Outsourcing Projects

    ➜Insourcing -common approach using professional expertise within an organization to develop and maintain the organization's information technology systems.

    ➜Outsourcing -an arrangement by which one organization provides service or services for another organization that chooses not to perform them in-house.They hired outside people because did not have expertise and focus on core competency.

*The most common functions outsource is information technology.

*Reasons companies outsource

➔Onshore outsourcing -engaging another company within the same country for services.

➔Nearshore outsourcing -Contracting an outsourcing arrangement with a company in a nearby country such as Singapore,Indonesia ,Thailand,Brunei.

➔Offshore outsourcing -using organizations from developing countries to write code and develop systems .For example ,United Kingdom and United States will invest in Malaysia.

*Big selling point for offshore outsourcing "inexpensive good work"

➤Factors driving outsourcing growth include :

   ➥Core competencies - To fuel revenue growth rather than just a cost-cutting measure.

   ➥Financial savings -Cheaper to hire workers in China and India than workers in United States (offshore outsource).

   ➥Rapid growth -Able to acquire best-practices process expertise .This facilitates the design,building,training,and deployment of business processes or functions.

   ➥Industry changes - Increased demand for outsourcing to better focus on core competencies.

   ➥The Internet -Effective sales channel has allowed clients to become more comfortable with outsourcing.

   ➥Globalization -Engage outsourcing service providers to deliver international services.

*Most organizations outsource their noncore business functions such as payroll and IT.

2.Outsourcing benefits include:

➜Increased quality and efficiency.

➜Reduced operating expenses.

➜Outsourcing non-core processes.

➜Increased flexibility.

➜Access to advanced technologies.

3.Outsourcing challenges include :

➤Contract length

*Most outsourcing contracts span several years and cause the issues discussed above.

    ➥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

    ➥Effective and innovative use of IT can be lost when using an 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 (have to pay more if we ask to do more).