The carnage of outsourcing and

other Technology - Enabled

Organizational Imperatives

ACSC 272
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 Definition of Outsourcing

 Outsourcing is the act of one company

contracting with another company to
provide services that might otherwise be
performed by in-house employees.
These jobs are handled by separate
companies that specialize in each
service.

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 What is Outsourcing?

 Outsourcing -
– “the strategic use of outside resources to perform
activities traditionally handled by internal staff and
resources” Dave Griffiths

 Why Outsource?
– Provide services that are scalable, secure, and
efficient, while improving overall service and
reducing costs

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 The main types of outsource

Total outsourcing
Integrality
Partial Outsourcing
Production outsourcing
Sales Outsourcing
Function
RandD outsourcing
HR Outsourcing Managed Service

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 Why do Companies Outsource?

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 Reasons for Outsourcing

 Traditional role - reaction to problem

– Reduction and control of costs
– Avoid large capital investment costs
– Insufficient resources available
 Modern role – business strategy
– Allows company to focus on their core
competencies
– Keeping up with cutting-edge technology
– Creating value for the organization and its
customers
6 – Building partnerships
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 What Can be Outsourced?

 system integration
 data network
 mainframe data center
 voice network, internet/intranet
 maintenance/repair
 applications development
 e-commerce
 end-user support system

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 When to Outsource

PricewaterhouseCoopers Model
Strategic Non-Strategic

Competitive Not Grey

Outsourced Area

Non-Competitive In House
Outsource
if Possible
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 How to Implement Outsourcing

 Program initiation
– Opinions and ideas shared to form draft
contract

 Program implementation
– Transferring staff
– Service Level Agreement (SLA)
– Establish communications between partners
– Actual transfer of the service
– Establish management procedures

 Contract agreement
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 Contract fulfillment6/15/2021
 Outsourcing Project Manager Roles
 Leader: Supervising, hiring, training, organizing, coordinating
and motivating project personnel
 Resource allocator: Allocating human, financial, and
information resources to the project
 Spokesman: Extending contacts outside the project to achieve
acceptance and support for the project
 Entrepreneur: Identifying users’ needs and management
expectations to the project
 Liaison: Communicating information with the external corporate
environment
 Monitor: Scanning information from the external corporate
environment

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 Problems With Outsourcing

 Loss of Control
 Increased cash outflow
 Confidentiality and security
 Selection of supplier
 Too dependent on service
provider
 Loss of staff or moral problems
 Time consuming
 Provider may not understand
business environment
 Provider slow to react to changes
in strategy
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 Problems With Outsourcing

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 Advantages:
 Better quality people and knowledge may be applied
to an activity or task by the outsourcing firm.
 Reduction in administrative costs may be possible
when certain tasks are outsourced.
 Outsourcing certain activities and employees that do
not fit with company culture may be used to preserve
a strong culture or employee morale.
 It often saves money,
 It allows the enterprise concentrate on core business
while having the details taken care of by outside
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 Disadvantages

 Outsourcing may lead to loss of control of certain

activities which may be a problem on time sensitive
projects for example.
 Outsourcing an activity may result in loss of the
opportunity to gain knowledge and information that
may have general application to other key processes
and activities.
 Overseas enterprise responsibility
 The problem of intellectual property
 The problem of contractors’ loyalty
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 Outsourcing: Considerations

Outsourcing may not be appropriate when:

1. The task is a core activity critical to strategy or
technology.
2. Task is highly interdependent with core activity due
to technology or work design.
3. Task requires great deal of firm specific human
capital or access to proprietary information.
4. Tasks where the employees work in close proximity
to regular, core employees and are similar socially
to them.
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 Outsourcing Opportunities

 Reduced IT costs
 Improved technology and services
 Business focus
 Downsizing and rightsizing
 Access to knowledge
 Reduced capital expenditure
 Vendor value proposition
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 Outsourcing Threats
 Outsourcing activities that should not be
outsourced
 Selecting the wrong vendor
 Writing a poor contract
 Overlooking personnel issues
 Loosing control over the outsourced activity
 Overlooking hidden costs of outsourcing

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exit strategy
 Risks of Outsourcing

 Possibility
of weak management
 Inexperienced staff
 Business uncertainty
 Outdated technology skills
 Endemic uncertainty
 Hidden costs
 Lack of organizational learning
 Loss of innovative capacity
 Dangers of an external triangle
19  Technological indivisibility
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 Examples

Apple makes most of its components outside

America. Foxconn is one of its suppliers.

Advantages:
There are much cheaper labour force in China,
so outsourcing can save much cost;
There is more time left for Apple to focus on its
core business and to do more research work,
which do better to develop Apple’s competition.
As a result, Apple gets a big success.
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 Database Outsourcing

 Areas
– Clinic
– Preventive Care
– On-going support
– Enhancement Care

 Benefits
– Savings of 25% - 40%
– Pay-per-gig pricing
– Off-site data storage
– Automated
– Free up server space

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 Email Outsourcing

“The total cost of ownership for an in-house email system is

likely to be in the range of $200 to $400 per user per
month……. Outsourcing should reduce TCO by 10% to
30%.” Ferris Research, June 2001

Typical Services
 Email Hosting
– Email@yourdomain – 24x7 Web-based Support
– POP3 access – Spell Check
– IMAP4 access – Email Forwarding
– Outbound SMTP – Unlimited Attachment Size
– Virus Scanning – Unlimited Storage Folders
– External POP Access – Multiple attachments
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LISTENING

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