Outsourcing in the 21st Century
Insourcing (in house development)
Common approach
using the professional expertise within a company to develop and maintain the
company’s information technology systems.
Outsourcing
Arrangement
which is a company provides a service or services for another company that
chooses not to perform them in house.
Outsourcing Projects
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 company
from developing countries to write code and develop systems.
Factors
driving outsourcing growth:
- Core competencies
Many company
consider it as to fuel revenue growth rather just a cost-cutting measure.
- Financial savings
Typically
cheaper to hire workers in China and India than similar workers in United
States.
- Rapid growth
Able to acquire
best practices process expertise (design, building, training).
- Industry changes
High levels of
reorganization across industries have increased demand for outsourcing to
better focus on core competencies.
- Internet
Persavise nature
of the internet as an effective sales channel has allowed clients to become
more comfortable with outsourcing.
- Globalization
When markets
open worldwide, competition heats up. Companies may engage outsourcing service
providers to deliver international services.
Outsourcing Benefits:
- Increased quality and efficiency
- Reduced operating expenses
- Outsourcing non-core processes
- Reduced exposure to risk
- Reduced time to market for products or services
- Reduced headcount and associated overhead expense
- Access to advanced technologies
- Increased flexibility
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
Effective and
innovative use of IT can be lost when using an outsourcing service provider.
- Confidentiality
Might be
breached by outsourcing service provider especially that provides services to
competitors.
- Scope definition
Common problem
with outsourcing agreements.
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