MGT300: Chapter 15 - Outsourcing

Outsourcing Project

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

According to PricewaterhouseCoopers “Businesses that outsource are growing faster, larger and more profitable than those that do not”
Most organizations outsource their noncore business functions, such as payroll and IT

Outsourcing Benefits

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
Difficulties in getting out of a contract
Problems in foreseeing future needs
Problems in reforming an internal IT department after the contract is finished

Competitive edge
Confidentiality
Scope definition

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