CHAPTER 15: OUTSOURCING IN THE 21ST CENTURY

• In-sourcing (in-house-development) - a common approach using the professional expertise within an organization's information technology system.
• outsourcing - an arrangement by which one organization provides a service or services for another organization that chooses not to perform the in-house.
  
• Reason companies outsource

OUTSOURCING PROJECT

• Onshore outsourcing - engaging another company within ye 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 ane develop systems.
  

• Big selling point foe offshore outsourcing "inexpensive good work"

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• Factors driving outsourcing:

              - 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, training,                and deployment of business processes or functions. 

              - Industry changes - High level 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                 client to become more comfortable with outsourcing.

              - Globalization - As markets open worldwide, competition heats up. Companies may engage                 outsourcing service providers to deliver international services. 

• Most organizations outsource their non-core business functions, such as playroll and IT
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OUTSOURCING BENEFIT 

1. Increased quality and efficiency
2. Reduced operating expenses
3. Outsourcing non-core processes
4. Reduced exposure to risk
5. Access to advanced technologies
6. Increased flexibility 
7. Avoid costly outlay of capital funds
8. Reduced time to market for products or services

OUTSOURCING CHALLENGES

1.Contract length

• Most outsourcing contract span several years and cause the issue discussed above

- Difficulties in getting out of a contract

- Problems in foreseeing future needs

- Problems in reforming an internal IT department after the contact is finished

2. Competitive edge

• Effective and innovative use of IT can be lost when using an outsourcing service provider.

3. Confidentiality

•  Confidential information might be reached by an outsourcing service provider, especially one that provides services to competitors 

4. Scope definition

• Scope creep is a common problem with outsourcing agreements