CHAPTER 15: OUTSOURCING

Outsourcing

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
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  • 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 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:
    • 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 services provider, especially one that provides services to competitors
    • scope definition
      • scope creep is a common problem with outsourcing agreements




17 DECEMBER 2017
SUNDAY


















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