Strategic Outsourcing Business Plug-In B13 Strategic Outsourcing

LEARNING OUTCOMES Explain the business benefits and challenges of outsourcing Identify the three primary outsourcing options Summarize a list of leading offshore outsourcing countries

LEARNING OUTCOMES Summarize a list of up-and-coming offshore outsourcing countries Summarize a list of rookie offshore outsourcing countries Describe the future trend of multisourcing and how it can support a business need for outsourcing

INTRODUCTION Outsourcing – an arrangement by which one organization provides a service or services for another organization that chooses not to perform them in-house Typically, the outsourced process or function is a noncore business activity

The Outsourcing Phenomenon According to research firm IDC, the worldwide IT outsourcing market will reach $230 billion by 2009 According to PricewaterhouseCoopers “Businesses that outsource are growing faster, larger, and more profitable than those that do not”

The Outsourcing Phenomenon Most organizations outsource their noncore business functions, such as payroll and IT

The Outsourcing Phenomenon Outsourcing growth drivers Globalization The Internet Growing economy and low unemployment rate Technology Deregulation

OUTSOURCING BENEFITS Outsourcing benefits include: Increased quality and efficiency Reduced operating expenses Outsourcing non-core processes allows focus on core competencies Reduced exposure to risk Service providers 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 frustrations and expense related to hiring/retaining employees Reduced time to market for products or services

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

OUTSOURCING OPTIONS Big selling point for offshore outsourcing “inexpensive good work”

OUTSOURCING OPTIONS

OFFSHORE OUTSOURCING Three categories of outsourcing countries: leaders, up-and-comers, rookies

The Leaders Canada India Ireland Israel Philippines

The Leaders Canada

The Leaders India

The Leaders Ireland

The Leaders Israel

The Leaders Philippines

The Up-and-Comers Brazil China Malaysia Mexico Russia South Africa

The Up-and-Comers Brazil

The Up-and-Comers China

The Up-and-Comers Malaysia

The Up-and-Comers Mexico

The Up-and-Comers Russia

The Up-and-Comers South Africa

The Rookies Argentina Chile Costa Rica New Zealand Thailand Ukraine

The Rookies Argentina

The Rookies Chile

The Rookies Costa Rica

The Rookies New Zealand

The Rookies Thailand

The Rookies Ukraine

THE CHALLENGES OF OUTSOURCING Outsourcing challenges include Contract length 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 Confidentiality Scope definition

Future Trends Outsourcing is becoming less of a cost-saving strategy and more an overall context for business Outsourcing is approaching commodity status Companies should look for value-based pricing rather than the lowest possible price Multisourcing – a combination of professional services, mission-critical support, remote management, and hosting services that are offered to customers

Closing Case One Mobile Travel Guide Mobil Travel Guide decided to outsource to IBM all of its Web applications and database servers Mobile Travel Guide avoided up-front capital investment without sacrificing scalability, reliability, or flexibility

Closing Case One Questions What are the main reasons Mobil Travel Guide used an outsourcing option? What other areas would you recommend Mobile Travel Guide outsource? What advantages and disadvantages would offshore outsourcing or nearshore outsourcing have for Mobile Travel Guide? Make a list of the countries where Mobil could outsource its Travel Guide

Closing Case Two Outsourcing Brew Coors Brewing Company needed to improve access to information, consolidate systems, and reduce costs Coors outsourced its day-to-day management of its technical operations, conversion of legacy applications, and system to EDS

Closing Case Two Questions Describe an alternative approach that Coors could have used instead of outsourcing to EDS What would be the advantages of offshore outsourcing Coors’ IT department? What are some other reasons Coors outsourced its information technology functions that were not mentioned in the case? Describe some of the factors causing Coors to be “forced” to outsource its information technology functions