What is Outsourcing? Outsourcing is the act of transferring some of an organization’s recurring internal activities and decision rights to outside providers, as set forth in a contract.
What is Outsourcing? Outsourcing - “the strategic use of outside resources to perform activities traditionally handled by internal staff and resources” Dave Griffiths Why Outsource? Provide services that are scalable, secure, and efficient, while improving overall service and reducing costs
Why do Companies Outsource?
Reasons for Outsourcing Traditional role - reaction to problem Reduction and control of costs Avoid large capital investment costs Insufficient resources available Modern role – business strategy Allows company to focus on their core competencies Keeping up with cutting-edge technology Creating value for the organization and
What Can be Outsourced? system integration data network mainframe data center voice network, internet/intranet maintenance/repair applications development e-commerce end-user support system
Reasons and Benefits Organizationally - focus, flexible, transformation, customer service Improvement - performance, manage & control, risk manage, new ideas, image Financially - reduce investment, generate cash Revenue - gain market access, expand Cost - reduce cost, from fixed to variable cost Employee – incentive, motivate.
Levels of Outsourcing Individual – moving specific positions out of the organization. Functional – having specialized knowledge and responsibilities. Process – how products or services actually flow through the organization.
Michael Porter’s “value chain” Page 6Processes and Functions Functions Processes Purchasing Receiving Accounts Payable Inventory Control Inventory DistributionInbound logistics X X X XOperations X XProcurement X X XTechnology development X X X X XHuman resources management X X X X XInfrastructure X
How to Implement Outsourcing Program initiation Opinions and ideas shared to form draft contract Program implementation Transferring staff Service Level Agreement (SLA) Establish communications between partners Actual transfer of the service Establish management procedures Contract agreement
Problems With Outsourcing Loss of Control Increased cash outflow Confidentiality and security Selection of supplier Too dependent on service provider Loss of staff or moral problems Time consuming Provider may not understand business environment Provider slow to react to changes in strategy
Problems With Outsourcing
Types of Outsourcing Tactical Strategic -future vision consideration -current and future core competencies -structure -costs -performance -competitive advantages.
History, Trend, and Growth To describe the growing trend of large companies transferring their information systems to providers (WWII). Trend in larger organizations is to outsource entire processes. Expected to grow at double-digit rates over the coming decade.
Risks Related to… Risks relating to Project Design Risks relating to Managing the Project Risks relating to the Transition to the Provider’s Services Risks relating to Managing the Provider’s Services.
Why Outside Advisers are Needed? Because they : help manage risks level the playing field with provider expertise assist the project manager in focusing on outsourcing issues act as a paradigm buster (challenge established thinking) offer independent observations on the outsourcing environment.
Reasons Not To Outsource If there are reasons to Outsource, there are reasons NOT to Outsource: Uncertainty Loss of Control Conflict Employee Unhappiness Financial Excuses