5. Outsourcing
• “Letting another organization perform
services that a company used to perform but
that the company no longer consider to be
mainstream for that company”
6. Outsourcing in the past (until 1990)
• Cost-effective access to specialized or
occasionally needed computing power or
systems development skills, e.g., renting a tele-
conferencing system.
• Avoidance of building in-house IT skills and skill
sets, primarily an issue for small and very low-
technology organizations.
• Access to special functional capabilities, e.g.,
corporate data-network management, especially
for the main IT activities of mid-sized and large
organizations.
7. Outsourcing today
• Two factors affected the growth of IT
outsourcing, namely:
• Acceptance of strategic alliances: the
customer and the outsourcer must believe
that the alliance is worthwhile. They have to
realize weaknesses in each firm involved in
that synergistic relationship with the goal to
strengthen its resources.
8. Outsourcing today ...
• IT’s changing environment: It is becoming
increasingly important in inter-organizational
services.
9. Factors drives outsourcing
• Costs and Quality Concern
• Outsourcers can more concentrate on reducing costs and increasing
quality because they don’t involve in non-technical aspects of a firm.
• Breakdown in IT Performance
• Due to their business nature, outsourcer is more alert to systems failure,
so systems reliability and backup are among the most important aspects
for them.
• Intense Supplier Pressure
• Suppliers’ strong motivation to find new value-added services to reach
their customers has brought up more sophisticated and better technology
development and services.
• Simplified General Management Agenda
• A firm under intense cost or competitive pressures has a strong intention
to outsource IT if it doesn’t see IT as its core competence.
10. Factors drives outsourcing
• Financial Factors
• Liquidate the firm’s IT assets strengthens the balance sheet.
• Corporate Culture
• Outsourcing can be a better solution to overcome status quo in
existing IT services.
• Eliminating an Internal Irritant
• “Traditional” tension between users and IT staff is a good reason for
users to “kick out” the IT function and rely on remote/external
services provided by the experienced outsourcer.
• Other Factors
• Outsourcing can attract qualified IT staff candidates and also
increase time to market.
11. When to Outsource The Resource
• Outnumbered by the resource requirements
• Need specific type of skill
• Need specific level of skill mastery
• Part of the business strategy, eg. : (1)
Smoothing the balance sheet, (2) Liquidify a
business unit, (3) Company is in turnaround,
(4) (HR) Risk shifting to supplier.
12. Important aspects should be watch
• The contract terms and conditions
• The skill (type and level of mastery) of the resource
• The utilization
• The work performance measurements
• The reward and punishment mechanism
• The cost or cost/benefit ratio
• The cultural impact
• The quality of work
• The knowledge management
• The impact to business model
