Chapter 19 : 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:

1)Core competencies

2)Financial savings

3)Rapid growth

4)Industry changes

5)The Internet

6)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:

1)Increased quality and efficiency

2)Reduced operating expenses

3)Outsourcing non-core processes

4)Reduced exposure to risk

5)Economies 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:

-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