Chapter 15 - Outsourching 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

•   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
§  Financial savings
§  Rapid growth
§  Industry changes
§  The Internet
§  Globalization

•  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

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