1. Strategic Outsourcing
Business Plug-In B13
Strategic Outsourcing

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

3. 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

4. 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

5. 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”

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

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

8. 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

9. 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

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

11. OUTSOURCING OPTIONS

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

13. The Leaders
Canada
India
Ireland
Israel
Philippines

14. The Leaders
Canada

15. The Leaders
India

16. The Leaders
Ireland

17. The Leaders
Israel

18. The Leaders
Philippines

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

20. The Up-and-Comers
Brazil

21. The Up-and-Comers
China

22. The Up-and-Comers
Malaysia

23. The Up-and-Comers
Mexico

24. The Up-and-Comers
Russia

25. The Up-and-Comers
South Africa

26. The Rookies
Argentina
Chile
Costa Rica
New Zealand
Thailand
Ukraine

27. The Rookies
Argentina

28. The Rookies
Chile

29. The Rookies
Costa Rica

30. The Rookies
New Zealand

31. The Rookies
Thailand

32. The Rookies
Ukraine

33. 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

34. 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

35. 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

36. 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

37. 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

38. 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