Chapter 19 : Outsourcing in the 21st Century

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.

Reasons companies outsource.

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.

Big selling point for offshore outsourcing “inexpensive good work”.

Factors driving outsourcing growth include :

• Core competencies
• Financial savings
• Rapid growth
• Industry changes
• The Internet
• Globalization

According to Pricewaterhouse Coopers, “Businesses that outsource are growing faster, larger, and more profitable than those that do not”.

Most organizations outsource their non-core 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 : 

1. Contract length
2. Difficulties in getting out of a contract
3. Problems in foreseeing future needs
4. Problems in reforming an internal IT department after the contract is finished

• Competitive edge

• Confidentiality

• Scope definition