MGT 300 CHAPTER 15 : OUTSOURCING IN THE 21st CENTURY

LEARNING OUTCOMES :

  1. Describe the advantages and disadvantages of insourcing, outsourcing, and offshore outsourcing.
  2. Describe why outsourcing is a critical business decision.

  • OUTSOURCING PROJECTS 
-Insourcing (in-house-development) : is a common approach using the professional expertise within an organization's information technology system

-Outsourcing : is an arrangement by which one organization provides a service or services for another organization that chooses not perform them in house 

*Reasons companies outsource


* 3 TYPES OF OUTSOURCING 
  1. Onshore outsourcing : engaging another company within the same country for services
  2. Nearshore outsourcing : contracting an outsourcing arrangement with a company in a nearby country
  3. Offshore outsourcing : using organization from developing countries to write code and  develop systems














*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 facilities 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

*Most organization outsource their noncore business functions such as payroll and IT



* Outsourcing benefits include :
-Increased quality and efficiency 
-Reduced operating expenses
-Outsourcing non-core process
-Reduced exposure to risk
-Access to advanced technologies 
-Increased flexibility 

*Outsourcing challenges include : 
  1. CONTRACT LENGTH : most outsourcing contracts span several years and cause the issues discussed above get a difficulties in getting out of a contract, have a problems in foreseeing future needs and problems in reforming an internal  IT departments 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 : confidentiality information might be breached by an outsourcing service provider, especially one that provides services to competitors 
  4. SCOPE DEFINITION : scope creep is a common problems with outsourcing agreements
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