OUTSOURCING IN THE 21st CENTURY
Outsourcing Projects?
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
Reasons companies outsource
- Onshore outsourcing – engaging another company within the same country for services
- Nearshore 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
A big selling point for offshore outsourcing “inexpensive good work”
Factors driving outsourcing growth include:
1. Core competencies
Many companies have recently begun to consider outsourcing as a means to fuel revenue growth rather than just a cost-cutting measure.
2. Financial savings
It is typically cheaper to hire workers in China and India than similar workers in the United States.
3. Rapid growth
an organization is able to acquire best-practices process expertise. This facilitates the design, building, training, and deployment of business processes or functions.
4. Industry changes
High levels of reorganization across industries have increased demand for outsourcing to better focus on core competencies.
5. The Internet
The pervasive nature of the Internet as an effective sales channel has allowed clients to become more comfortable with outsourcing.
6. Globalization
As markets open worldwide, competition heats up. Companies may engage outsourcing service providers to deliver international services
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 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 include:
1. Contract length
Most outsourcing contracts span several years and cause the issues discussed above
- Difficulties in getting out of a contract
- Problems in foreseeing future needs
- Problems in reforming an internal IT department after the contract is finished
2. Competitive edge
Effective and innovative use of IT can be lost when using an outsourcing service provider
3. Confidentiality
Confidential
information might be breached by an outsourcing service provider, especially
one that provides services to competitors
4. Scope
definition
Scope
creep is a common problem with outsourcing agreements
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