CHAPTER 15

Chapter 15 – Outsourcing in the 21st Century

OUTSOURCING PROJECTS

Ø Insourcing (in-house-development) – A common approach using the professional expertise within an organization to develop and maintain the organization’s information technology systems

Ø Outsourcing – An arrangement by which one organization provides a service or services for another organization that chooses not to perform them in-house

 

Ø Onshore outsourcing – engaging another company within the same country for services

Ø Near shore outsourcing – contracting an outsourcing arrangement with a company in a nearby country

Ø Offshore outsourcing – using organizations from developing countries to write code and develop systems

Ø Big selling point for offshore outsourcing “inexpensive good work”

 

Ø Factors driving outsourcing growth include;

ü Core competencies

ü Financial savings

ü Rapid growth

ü Industry changes

ü The Internet

ü Globalization

Ø According to PricewaterhouseCoopers “Businesses that outsource are growing faster, larger and more profitable than those that do not”

Ø Most organizations outsource their noncore business functions, such as payroll and IT

 

OUTSOURCING BENEFITS

Outsourcing benefits include;

ü Increased quality and efficiency

ü Reduced operating expenses

ü Outsourcing non-core processes

ü Reduced exposure to risk

ü Economies of scale, expertise and best practices

ü Access to advanced technologies

ü Increased flexibility

ü Avoid costly outlay of capital funds

ü Reduced headcount and associated overhead expense

ü Reduced time to market for products or services

OUTSOURCING CHALLENGES

Outsourcing challenges include;

Ø 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

Ø Competitive edge

Ø Confidentiality

Ø Scope definition