Saturday, 26 September 2015

Chapter Nineteen Outsourching in The 21st Century

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                                 Chapter Nineteen Outsourching 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
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


• Business process outsourcing (BPO) – contracting of a specific business task, such as payroll, to a third-party service provider
• BPO is divided into two categories:
1. Back-office outsourcing
2. Front-office outsourcing 


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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