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 Typically, the outsourced process or function is a noncore business activity The worldwide IT outsourcing market will reach $164 billion by 2005 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

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

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

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

Outsourcing Benefits Increased quality and efficiency Reduced operating expenses Outsourcing non-core processes allows businesses to focus on their core competencies Reduced exposure to risk Access to outsourcing service providers economies of scale and expertise and best-in-class 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 and retaining employees in an exceptionally tight job market Reduced time to market for products or services

Who’s Who in Offshore Outsourcing Big selling point for offshore outsourcing “inexpensive good work”

Canada

India

Ireland

Philippines

China

Malaysia

Mexico

Argentina

New Zealand

Ukraine

Outsourcing Challenges 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 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 in any combination needed