OUTSOURCING PROJECTS
Ø Insourcing (in-house-development) – a common approach using the professional expertise within an organization to develop and maintain the organization's information technology systems.
Ø Outsourcing – an arrangement by which one organization provides a service or services for another organization that chooses not to perform them in-house.
Ø Reasons companies outsource.
Ø Onshore outsourcing – engaging another company within the same country for services.
Ø Nearshore outsourcing – contracting an outsourcing arrangement with a company in a nearby country.
Ø Offshore outsourcing – using organizations from developing countries to write code and develop systems.
Ø Big selling point for offshore outsourcing “inexpensive good work”.
Ø Factors driving outsourcing growth include:
o Core competencies
• Many companies have recently begun to consider outsourcing as a means to fuel revenue growth rather than just a cost-cutting measure.
o Financial savings
• It is typically cheaper to hire workers in China and India than similar workers in the United States.
o 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.
o Industry changes
• High levels of reorganization across industries have increased demand for outsourcing to better focus on core competencies.
o The Internet
• The pervasive nature of the Internet as an effective sales channel has allowed clients to become more comfortable with outsourcing.
o Globalization
• As markets open worldwide, competition heats up. Companies may engage outsourcing service providers to deliver international services.
Ø According to PricewaterhouseCoopers “Businesses that outsource are growing faster, larger, and more profitable than those that do not”.
Ø Most organizations outsource their noncore business functions, such as payroll and IT.
Ø Outsourcing Benefits
include:
o Increased quality and efficiency.
o Reduced operating expenses.
o Outsourcing non-core processes.
o Reduced exposure to risk.
o Economies of scale, expertise, and best practices.
o Access to advanced technologies.
o Increased flexibility.
o Avoid costly outlay of capital funds.
o Reduced headcount and associated overhead expense.
o Reduced time to market for products or services.
Ø Outsourcing Challenges
include:
o 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.
o Competitive edge
• Effective and innovative use of IT can be lost when using an outsourcing service provider.
o Confidentiality
• Confidential information might be breached by an outsourcing service provider, especially one that provides services to competitors.
o Scope definition
• Scope creep is a common problem with outsourcing agreements.
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