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.

=>> Onshore outsourcing – engaging another company within the same country for services.

=>> Near shore 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.

§> Financial savings.

§> Rapid growth.

§> Industry changes.

§> The Internet.

§> 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

Ø>>  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

=>> 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.