1. McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved. BUSINESS DRIVEN TECHNOLOGY Chapter Fifteen: Outsourcing Collaborative Partnerships

2. McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved. 15-2 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

3. McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved. 15-3 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

4. McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved. 15-4 INSOURCING Insourcing – a common approach using the professional expertise within an organization to develop and maintain the organization's information technology systems

5. McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved. 15-5 OUTSOURCING Outsourcing – an arrangement by which one organization provides a service or services for another organization that chooses not to perform them in-house

6. McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved. 15-6 OUTSOURCING Benefits from outsourcing include: – Financial savings – Increased technical abilities – Market agility

7. McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved. 15-7 OUTSOURCING Factors driving outsourcing growth: – Core competencies – Rapid growth – Industry changes – The Internet

8. McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved. 15-8 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: 1.Back-office outsourcing 2.Front-office outsourcing

9. McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved. 15-9 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

10. McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved. 15-10 CHAPTER FIFTEEN Opening Case Study Questions 1.Explain the driving forces behind Amazon.com’s need to keep all IT development and systems in- house 2.Identify which business process Amazon.com could or perhaps should outsource 3.Discuss the pitfalls Amazon.com would encounter if it decided to outsource its IT department

11. McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved. 15-11 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

12. McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved. 15-12 CHAPTER FIFTEEN CASE QUESTIONS 1.Summarize a few reasons why Pearson did not use an insourcing approach for its IT needs 2.What are some of the advantages that IBM can offer Pearson as a result of outsourcing many of its critical business functions? 3.Explain the advantages of forming an outsourcing relationship with an international company, such as IBM has with Pearson