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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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