CHAPTER 15 - OUTSOURCING IN THE 21st CENTURY

OUTSOURCING PROJECTS

Basic options to organizations wishing to develop and maintain their information systems:

i. Insourcing (in-house-development): A common approach using the professional expertise within an organization to develop and maintain the organization’s information technology system. It has been instrumental in creating a viable of it professional and creating better quality workforce combining both technical and business skills.

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

Types/ Forms of outsourcing options:

1. Onshore outsourcing: engaging another company within the same country for services.
2. Near shore outsourcing: contracting an outsourcing arrangement with a company in a nearby country and often they will share a border with the native count.
3. Offshore outsourcing: using organizations from developing countries to write code and develop systems as the country is geographically far away.

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

Factors drivers affecting outsourcing growth include:

• Core competencies
• Financial savings
• Rapid growth
• Industry changes
• The Internet
• 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:

1. Increased quality and efficiency of a process, service or function
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:

- Contract length

• Most of the outsourcing IT contracts is for a relatively long time period (several years).
• It is because high cost of transferring assets, employees and maintaining technological investment

The long contract causes 3 issues:

1. Difficulties in getting out of a contract if the outsourcing service provider turns out to be unsuitable
2. Problems in foreseeing future needs
3. Problems in reforming an internal IT department after the contract is finish

- 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 service provider , especially one that provides service to competitors

- Scope definition

•  Scope creep is a common problem with outsourcing agreements

Thank you :) . End ..