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
*Factors driving
outsourcing growth include:
- · Core competencies - Many companies have recently begun to consider outsourcing as a means to fuel revenue growth rather than just a cost-cutting measure.
- · Financial savings - It is typically cheaper to hire workers in China and India than similar workers in the United States.
- · 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.
- · Industry changes - High levels of reorganization across industries have increased demand for outsourcing to better focus on core competencies.
- · The Internet - The pervasive nature of the Internet as an effective sales channel has allowed clients to become more comfortable with outsourcing.
- · Globalization - As markets open worldwide, competition heats up. Companies may engage outsourcing service providers to deliver international services
*According to
PricewaterhouseCoopers “Businesses that outsource are growing faster, larger,
and more profitable than those that do not”
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:
- 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
- Competitive edge - Effective and innovative use of IT can be lost when using an outsourcing service provider
- Confidentiality - Confidential information might be breached by an outsourcing service provider, especially one that provides services to competitors
- Scope definition - Scope creep is a common problem with outsourcing agreements
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