OUTSOURCING
PROJECTS
Insourcing
(in-house development)
is a common approach using the professional expertise within the organization
to develop and maintain the organization’s information technology system.
Outsourcing
is an arrangement by
which one organization provides a service or services for another organization
that chooses not to perform them in-house.
FORMS
OF OUTSOURCING OPTIONS
·
Onshore outsourcing – engaging another company within the
same country for services
·
Nearshore outsourcing – contracting an outsourcing
arrangement with a company in a nearby country, often this country will share a
border with a native country.
·
Offshore outsourcing – using organizations from developing
countries to write code and develop systems. In offshore outsourcing the
country is geographically far away.
INFLUENTIAL
DRIVERS AFFECTING THE GROWTH OF THE OUTSOURCING MARKET
·
Core competencies – outsourcing enables an organization
to maintain an up-to-date technology infrastructure while freeing it to focus
on revenue growth goals by reinvesting cash and human capital in areas offering
the greatest return on investment.
·
Financial savings – typically cheaper to hire workers in
China and India than similar workers in the United States. Technology is advancing at such an
accelerated rate that companies often lack the resources, workforce, or
expertise to keep up.
·
Rapid growth – an organization is able to acquire
best- practices process expertise. This facilities the design, building,
training and employment of business processes and functions.
·
Industry changes – high levels of reorganization across
industries have increased demand for outsourcing to better focus on core
competencies. The significant increase in merger and acquisition activity
created in sudden need to integrate multiple core and noncore business
functions into one business.
·
The Internet – barriers to entry such as lack of
capital, are dramatically reduced in the world of e-business due to the
internet. New competitors enter the market daily.
·
Globalization – as market opens 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 profit-generating competencies
- · No costly outlay of capital funds
- · Reduced time to market for products or services
- · Reduced head count and associated overhead expenses
OUTSOURCING
CHALLENGES
·
Contract length – most of the outsourced IT contracts
are for a relativity long time period. This is because of the high cost of
transferring assets and employees as well as maintaining technological
investment. The long contract causes three particular issues:
1.
Difficulties
in getting out of contract if the outsourcing service provider turns out to be
unsuitable.
2.
Problems
in foreseeing what the business will need over the next 5 or 10 years, hence
creating difficulties is establishing an appropriate contract.
3.
Problems
in reforming an internal IT department after the contract period is finished.
·
Competitive edge – a competitive business advantage
provided by an internal IT department that understands the organization and is
committed to its goals can be lost in an outsourced arrangement. In an
outsourced arrangement, IT staff are striving to achieve the goals and
objectives of the outsourcing service provider, which may conflict with those
of the organization.
·
Confidentiality – the organization must assess the
potential risk and cost of a confidentiality breach in determining the net
benefits of an outsourcing arrangement.
·
Scope definition – the services required is within the
contract scope while the service provider is sure it is outside the scope and
so is subject to extra fees.
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