Chapter 15 Outsourcing

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

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

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

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

Benefits from Outsourcing Financial savings Increased technical abilities Market agility

Factors driving outsourcing growth Core competencies Rapid growth Industry changes 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 Front-office outsourcing

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

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

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

IBM with Pearson 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