Chapter 15

Outsourcing

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Learning Outcomes

Describe the advantages and disadvantages of insourcing, outsourcing, and offshore outsourcing

Outsourcing can give the right combination of people, processes, and technology to operate efficiently and effectively in the global marketplace without burdening time and budget

Developing strategic outsourcing partnerships is increasingly becoming the strategic choice of companies looking to achieve cost reductions while improving their service quality, increasing shareholder value, and focusing on their core business capabilities

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Overview

This chapter focuses on businesses’ need to undertake every effort to re-think and re-adopt new processes, especially the prospective resources regarding:

Insourcing

Outsourcing

Offshore outsourcing

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Insourcing

Insourcing – a common approach using the professional expertise within an organization to develop and maintain the organization's information technology systems

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Outsourcing

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

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Benefits from Outsourcing

Financial savings

Increased technical abilities

Market agility

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Factors driving outsourcing growth

Core competencies

Rapid growth

Industry changes

The Internet

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Developing Strategic Outsourcing Partnerships Business process outsourcing (BPO) –

contracting of a specific business task, such as payroll, to a third-party service provider

BPO is divided into two categories:

1. Back-office outsourcing

2. Front-office outsourcing

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Offshore Outsourcing

Offshore outsourcing – using organizations from developing countries to write code and develop systems

According to Forrester Research, nearly half of all businesses use offshore providers, and two-thirds plan to send work overseas in the near future

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Opening Case Study Questions

1. Explain the driving forces behind Amazon.com’s need to keep all IT development and systems in-house

2. Identify which business process Amazon.com could or perhaps should outsource

3. Discuss the pitfalls Amazon.com would encounter if it decided to outsource its IT department

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IBM with Pearson

IBM signed an outsourcing arrangement with Pearson, a leading provider of financial and business news, to provide the company with managed operations services for its mainframe and server environment

As a result of the relationship with IBM, more than 70 Pearson employees will join IBM to support Pearson’s data center operations

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IBM with Pearson

1. Summarize a few reasons why Pearson did not use an insourcing approach for its IT needs

2. What are some of the advantages that IBM can offer Pearson as a result of outsourcing many of its critical business functions?

3. Explain the advantages of forming an outsourcing relationship with an international company, such as IBM has with Pearson