MGT 300

IT in BUSINESS

PN. INTAN LIANA SUHAIME

CHAPTER 15

Outsourcing in the 21st Century

 Learning Outcomes

19.1 Describe the advantages and

disadvantages of insourcing,
outsourcing, and offshore outsourcing

19.2 Describe why outsourcing is a

critical business decision
 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
OUTSOURCING PROJECTS
 OUTSOURCING PROJECTS

Reasons companies outsource

 OUTSOURCING PROJECTS
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
 OUTSOURCING PROJECTS

Big selling point for offshore outsourcing

inexpensive good work
 OUTSOURCING PROJECTS
Factors driving outsourcing growth include:
Core competencies
Many companies have recently begun to
consider outsourcing as a means to fuel
revenue growth rather than just a cost-cutting
measure.
Financial savings
It is typically cheaper to hire workers in China
and India than similar workers in the United
States.
 OUTSOURCING PROJECTS

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.
Industry changes
High levels of reorganization across
industries have increased demand for
outsourcing to better focus on core
competencies.
 OUTSOURCING PROJECTS

The Internet
The pervasive nature of the Internet as an
effective sales channel has allowed clients to
become more comfortable with outsourcing.
Globalization
As markets open worldwide, competition
heats up. Companies may engage
outsourcing service providers to deliver
international services
 OUTSOURCING PROJECTS

According to PricewaterhouseCoopers
Businesses that outsource are growing
faster, larger, and more profitable than
those that do not
 OUTSOURCING PROJECTS

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
Most outsourcing contracts span several years
and cause the issues discussed above
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
Effective and innovative use of IT can be lost
when using an outsourcing service provider
 Outsourcing Challenges

Confidentiality
Confidential information might be breached by an
outsourcing service provider, especially one that
provides services to competitors

Scope definition
Scope creep is a common problem with
outsourcing agreements
THANK YOU