Chapter Nineteen Outsourching 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 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
DEVELOPING STRATEGIC OUTSOURCING PARTNERSHIP
• 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
• 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
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
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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