Monday, 9 September 2013

Chapter 19 – Outsourcing in the 21st Century


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;
§  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


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


Ø  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 

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