CHAPTER 19

OUTSOURCING IN THE 21st Century

In this chapter, we learned about :

• Describe the advantages and disadvantages of insourcing, outsourcing, and offshore ousourcing
• Describe why outsourcing is a critical business decision

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 :

1. Core competencies
2. Financial savings
3. Rapid growth
4. Industry changes
5. The Internet
6. Globalization

• According to PricewaterhouseCoopers "Business 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 :

1. Increased quality and efficiency
2. Reduced operating expenses
3. Outsourcing non-core processes
4. Reduced exposure to risk
5. Economics of scale, expertise. and best practices
6. Access to advanced technologies
7. Increased flexibility
8. Avoid costly outlay of capital funds
9. Reduced headcount and associated overhead expense
10. Reduced time to market for products or services

Outsourcing Challenges

• Outsourcing challenges include :

1. Competitive edge
2. Confidentiality
3. Scope definition
4. Contract length

   - Difficulties in getting out of a contract

   - Problems in foreseeing future needs

   - Problems in reforming an internal IT department after the contract is finished