Liyana Natasha

CHAPTER 15 : OUTSOURCING IN THE 21ST CENTURY

⇒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

⇒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

⇒Factors driving outsourcing growth include:

1-Core competencies

-Many companies have recently begun to consider outsourcing as a means to fuel revenue growth rather than just a cost-cutting measure.

2-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 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 include:

1-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

2-Competitive edge

-Effective and innovative use of IT can be lost when using an outsourcing service provider

3-Confidentiality

-Confidential information might be breached by an outsourcing service provider, especially one that provides services to competitors 

4-Scope definition

-Scope creep is a common problem with outsourcing agreements