15.1. describe the advantages and disadvantages of insourcing, outsourcing, and offshore outsourcing
15.2. describe why outsourcing is a critical business decision.
Outsourcing Projects
- Insourcing (in-house-development) - a common approach using professional expertise within an organization to develop and maintain the organization's information technology systems.
- Outsourcing - an arrangement by which one organization provides a service or services for another organization that chooses not to perform them in-house.
- For example, the company do not have experts that expertise in training the new workers, so the managers can outsource a consultant to help him to train the new workers.
- outsourcing is one of the business critical because organization has to make a decision whether they want to hire someone who expert in the certain field or just appoint someone within the organization and to think about another factors such as salary.
- Tap outside sources of expertise
- concentrate resources on core business
- reduce head count and related expenses
- eliminate the need to reinvest in technology
- reduce costs
- better manage the costs of internal processes.
- 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.
- the reason using offshore outsourcing because it is cheap and can reduce costs.
- Core competencies
- many companies have recently begun to consider outsourcing as a means to fuel revenue growth rather than just a cost-cutting measure.
- it is typically cheaper to hire workers in China and India than similar workers in the United States.
- because when organization outsource from the developing country they can cut down the costs.
- an organization is able to acquire best-practices process expertise.
- this facilitates the design, building, training, and deployment of business processes or functions.
- For example, the IT fields nowadays always facing changing due to the technologies growth. so rather than have own expertise it is better to outsource because it can save the company budget.
- high levels of reorganization across industries have increased demand for outsourcing to better focus on core competencies.
- the pervasive nature of the internet as an effective sales channel has allowed clients to become more comfortable with outsourcing.
- as markets open worldwide, competition heats up.
- company may engages outsourcing service providers to deliver international services.
- because of worldwide competition we have to outsource so that we will not leave behind others.
- increased quality and efficiency
- reduced operating expenses
- outsourcing non-core processes such as HR or Finance
- reduce exposure to risk. meaning that if the organization lack in expertise outsource consultant to help or giving advice to the organization
- access to advanced technologies ( outsource technology from outside or rent the technology because there is always a changes in technology)
- increased flexibility
- avoid costly outlay of capital funds.
- reduce time to market for products or services.
- Contract length
- most outsourcing contracts span several years and cause the issues discussed above :
- difficulties in getting out of a contract
- problems in foreseeing future needs
- problems in reforming an internal IT department after the contract finished
- effective and innovative use of IT can be lost when using an outsourcing service providers.
- sometimes managers cannot recognise the expertise inside the organization because of that , there will be a competition between internal and external.
- confidential information might be breached by an outsourcing service provider, especially one that provide services to competitors.
- scope creep is a common problem with outsourcing agreements.
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