Chapter 19 : Outsourcing in the 21st Century

Outsourcing Projects

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

Ø  Onshore outsourcing – engaging another company within the same country for services

Ø  Near shore outsourcing – contracting an outsourcing arrangement with a company in a nearby country

Ø  Offshore outsourcing – using organizations from developing countries to write code and develop systems

Ø  Big selling point for offshore outsourcing “inexpensive good work”

Ø  Factors driving outsourcing growth include;

§  Core competencies

§  Financial savings

§  Rapid growth

§  Industry changes

§  The Internet

§  Globalization

Ø  According to PricewaterhouseCoopers “Businesses that outsource are growing faster, larger and more profitable than those that do not”

Ø  Most organizations outsource their noncore business functions, such as payroll and IT

OUTSOURCING BENEFITS

Ø  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

Ø  Outsourcing challenges include;

§  Contract length

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

§  Confidentiality

§  Scope definition