MGT300 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 Nearshore 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 Factors driving outsourcing growth include:
o Core competencies
• Many
companies have recently begun to consider outsourcing as a means to fuel
revenue growth rather than just a cost-cutting measure.
o Financial savings
• It is
typically cheaper to hire workers in China and India than similar workers in
the United States.
o 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.
o Industry changes
• High
levels of reorganization across industries have increased demand for
outsourcing to better focus on core competencies.
o The Internet
• The
pervasive nature of the Internet as an effective sales channel has allowed
clients to become more comfortable with outsourcing.
o Globalization
• As
markets open worldwide, competition heats up. Companies may engage outsourcing
service providers to deliver international services
Ø According to PricewaterhouseCoopers “Businesses that
outsource are growing faster, larger, and more profitable than those that do
not”
Ø Outsourcing Benefits
include:
o Increased quality and efficiency
o Reduced operating expenses
o Outsourcing non-core processes
o Reduced exposure to risk
o Economies of scale, expertise, and best
practices
o Access to advanced technologies
o Increased flexibility
o Avoid costly outlay of capital funds
o Reduced headcount and associated overhead
expense
o Reduced time to market for products or
services
Ø Outsourcing Challenges
include:
o 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
o Competitive edge
• Effective
and innovative use of IT can be lost when using an outsourcing service provider
o Confidentiality
• Confidential
information might be breached by an outsourcing service provider, especially one
that provides services to competitors
o Scope definition
• Scope
creep is a common problem with outsourcing agreements
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