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CHAPTER 19 : 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.

• Insourcing (in house development ) is a common approach using the professioanal expertise within to develop and maintain the organization's information technology system.
• Insourcing has been instrumental in creating a better quality workforce combining both tchnical and business skills.
•   Outsourcing is an arrangement by which one organization provides a service or services for another organization that chooses not perform them in houses.
• ·         The three different forms of outsourcing options a project must consider are :

• 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 organizations from developing countries to write code and develop systems. In offshore outsourcing the country is geographically far away.
  Some of the influential  drivers affecting the growth of the outsourcing market 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 US.
  o   Rapid growth : A company ‘s sustainability depends on both speed to market and ability to react quickly to changes in market conditions.
  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.
  
  
  OUTSOURCING BENEFITS
  §  Increased quality and efficiency of a process, service or function.
  §  Reduced operating expenses.
  §  Resources focused on core profits-generating competencies.
  §  Reduced exposure to risks involved with large capital investments.
  §  Access to outsourcing service provider’s economies of scale.
  §  Access to advanced technologies.
  §  No costly outlay of capital funds
  §  Reduced time to market for products or services.
  OUTSOURCING CHALLENGES
  Ø  Contract length : Most of outsourced IT contracts are for a relatively long time period  several years). This is because of the high cost for transferring assets and employees as well as maintaining technological investment.
  Ø  Competitive edge : Effective and innovative use of IT can give an organization a competitive edge over its rival.
  Ø  Confidentially : In some organizations, the information stored in the computers systems is central to the enterprise’s success or survival, such as information about pricing policies , product mixing formulas, or sales analysis.
  Ø  Scope definition : Most IT projects suffer from problems associated with defining the scope of the system.