MGT300 - 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 system
Ø  Outsourcing – an arrangement by which one organization provides a service or services for another organization that choose not to perform them-in-house






Ø  Factors driving outsourcing growth include :

*Core competencies – many companies have recently begun to consider outsourcing as a means to fuel revenue growth rather just a cost-cutting measure
*Financial saving – it is typically cheaper to hire workers in China and India than similar workers in the United States
*Rapid growth – an organization is able to acquire best-practices process expertise. This facilitates the design, building, training and development of business process or functions
*Industry changes – high level of reorganization across industries have increased demand for outsourcing to better focus on core competencies
*The internet – the pervasive nature of the internet as an effective sales channel has allowed clients to become more comfortable with outsourcing
*Globalization – as market opens worldwide, competition heats up. Companies may engage outsourcing service providers to deliver international services
Ø  According to Pricewaterhousecoopers “Businesses that outsource are growing faster, large and more profitable than those that do not”


 

Outsourcing Benefits

Ø  Increased quality and efficiency
Ø  Reduced operating expenses
Ø  Outsourcing non-core process
Ø  Reduced exposure to risk
Ø  Economies of scale, expertise and best practice
Ø  Access to advanced technologies
Ø  Increased flexibility
Ø  Avoid costly outlay of capital funds
Ø  Reduced headcount and associated overhead expenses
Ø  Reduced time to market for products and services

Outsourcing Challenges

Ø  Contract length
*Most outsourcing contracts span several years and cause the issues discussed above
  1. Difficulties in getting out of a contract
  2. Problem in foreseeing future needs
  3. Problems in reforming an internal IT department after the contract is finished
Ø  Competitive adge
*Effective and innovative use of IT can be lost by using an outsourcing service provider
Ø  Confidentiality
*Confidential information might be breached by an outsourcing service provider, especially one that provides services to competitors
Ø  Scope definition

*Scope creep is a common problem with outsourcing agreements

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