BUSINESS DRIVEN TECHNOLOGY Outsourcing Collaborative Partnerships Chapter Fifteen: Outsourcing Collaborative Partnerships

LEARNING OUTCOMES 15.1 Describe the advantages and disadvantages of insourcing, outsourcing, and offshore outsourcing 15.2 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 15.3 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

CHAPTER FIFTEEN OVERVIEW In the high-speed global business environment, an organization needs to maximize its profits, enlarge its market share, and restrain its ever-increasing costs 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

INSOURCING Insourcing – a common approach using the professional expertise within an organization to develop and maintain the organization's information technology systems Insourcing has been instrumented in creating a viable supply of IT professionals and in fact in creating a better quality workforce combining both technical and business skills Allied Office Products turned to insourcing 85 % of the IT work, he is now saving nearly $500,000/year.

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

OUTSOURCING (2) In some cases, the entire information technology dept. is outsourced, including planning and business analysis as well as installation, management, and servicing of the network and workstation Outsourcing can range from a large contract under which an organization like IBM manages IT services for a company such as Xerox, to the practice of hiring contractors and temporary office workers on an industrial basis

Benefits from outsourcing include: Financial savings: Ford+DaimlerChrysler+General Motor use Automotive Network Exchange decrease cost $1,200/car Increased technical abilities: Nike’s Global Product Information Network which is an innovative IT service that allows Nike’s employees to collaborate throughout their processes Market agility: The ability to expand core businesses more rapidly depending on the outsourcer’s capabilities to provide efficient transition to new systems, better information management for decision making, and expansion to new geographical markets

OUTSOURCING (4) Reasons why companies have outsourced

Factors driving outsourcing growth: Core competencies: a means to fuel revenue growth rather than just a cost-cutting Rapid growth: acquire best practices process expertise Industry changes: merger&acquisition and compliance with government rules and regulations The Internet

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: Back-office outsourcing: billing or purchasing Front-office outsourcing: customer service, marketing and technical service

SOURCING’S NEW SURGE - OFFSHORING 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

CHAPTER FIFTEEN Opening Case Study Questions Explain the driving forces behind Amazon.com’s need to keep all IT development and systems in-house Identify which business process Amazon.com could or perhaps should outsource Discuss the pitfalls Amazon.com would encounter if it decided to outsource its IT department

CHAPTER FIFTEEN CASE Outsourcing Can Change Everything 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

CHAPTER FIFTEEN CASE QUESTIONS Summarize a few reasons why Pearson did not use an insourcing approach for its IT needs What are some of the advantages that IBM can offer Pearson as a result of outsourcing many of its critical business functions? Explain the advantages of forming an outsourcing relationship with an international company, such as IBM has with Pearson