Outsourcing

MIS 5973
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
Why do Companies Outsource?
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
– Building partnerships
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
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

 Contract fulfillment
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
Stages of outsourcer–outsourcee
relationships

 Master–servant stage: In this conventional

relationship the outsourcer sets the expectations
and the rules and the outsourcee delivers as per
the stipulated norms. Low cost is the main driver
of the outsourcing arrangement.
 Consultative stage: This stage is a type of a
‘consultant–client’ relationship. The outsourcer
consults with the outsourcee on a regular basis.
In addition to the cost, other factors such as
quality, reliability and responsiveness are also
important for sustaining the outsourcing
arrangement.
 Peer-to-peer relationship stage:this is considered
to be the ideal stage where the outsourcer and the
outsourcee share a peer-to-peer relationship. This
stage of collaboration results in a more synergistic
long-term relationship creating ‘win–win’ situations
for both the parties.
 Competitive stage:In this stage the original
outsourcee company takes the lead role and
starts to compete with the outsourcing company
in global markets.

 Wartsila , shipyard located in Yalova 

Problems With Outsourcing