Outsourcing in the 21st Century
OUTSOURCING PROJECTS
⧭ 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
⧭ 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
⧭ 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
➳ 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
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