The document discusses outsourcing and managing global teams. It defines different types of outsourcing like offshore outsourcing, insourcing, and farmshoring. When evaluating outsourcing options, companies should consider factors like cost savings, risks, quality, and schedule. Managing outsourced projects requires strong communication and addressing cultural differences. A clear statement of work and contract are also important to define deliverables and ensure compliance.

1. Chapter 5
Outsourcing

2. Managing Global Teams
Outsourcing
• Not a new concept. Has been around for centuries.
• Cottage industries were replaced by factories which
could produce the products cheaper and more quickly.
• Shift from cottage to factory signaled the beginning of
outsourcing.

3. Managing Global Teams
The Decision to Outsource
• Outsourcing overseas
➢ Referred to as offshore outsourcing or offshoring
• Outsourcing domestically
➢ Referred to as insourcing or farmshoring.

4. Managing Global Teams
The Decision to Outsource
• When evaluating outsourcing options, some important
elements to consider are:
➢ Why do you want to outsource?
➢ What are the cost savings of outsourcing?
➢ Are there any one-off or recurring setup and maintenance
costs?
➢ What additional costs will be incurred for managing the
outsource relationship?
➢ How much risk can you afford for the project?
➢ How important is quality?
➢ How important is schedule (timeliness)?
➢ Who will manage the outsource project?
➢ How independently can the outsource work?

5. Managing Global Teams
The Decision to Outsource
• Defining what you want to outsource will help you
evaluate the sustainability of the work for outsourcing
and the suitability of each outsourcing option.
• Companies that want to be streamlined and innovative
should focus on their core strengths and outsource the
rest.
• Companies outsource to stay competitive and keep
costs low.
• Public companies outsource to keep stock prices high
and costs low.

6. Managing Global Teams
Offshoring
• Two different types of offshoring
➢ Offshore outsourcing
❖ An outsource company in the target country is contracted
to provide specific services.
❖ The benefit - is that once the work is complete, the
company has no further obligation to the employees who
worked on the project.
➢ Offshore office
❖ Where the parent company opens an office in the target
company and directly employs the staff at that company.
❖ The benefit – office has to be maintained even if work
gets slow for a while.

7. Managing Global Teams
Domestic Inshoring and Farmshoring
• Two types of domestic outsourcing
➢ Inshoring
❖ Company within the U.S. provides the workforce.
❖ Government contracts are often restricted to domestic
outsourcing.
❖ Companies resist the urge to offshore for moral reasons
or due to long-term business concerns.
➢ Farmshoring
❖ Outsourcing or relocating of jobs to rural areas of the U.S.
➢ The benefit – cultural differences, language
differences, and employment law are nonexistent.

8. Managing Global Teams
Unique Challenges of Outsourcing
• Impact on existing employees
➢ Existing employees may feel that their jobs are at
risk specifically if layoffs have occurred.
➢ Can create unease in the existing workforce.
• Ongoing communication and teamwork issues will
need to be managed.
• Cultural differences between team members can lead
to hostile behavior.
• More than half the U.S. companies that outsourced in
recent years have brought the outsourced work back
in house within the first five years.

9. Managing Global Teams
Managing Outsourced Projects
• Need to determine what type of management you will
need for your project.
• Communication is key to management.
• Try to hire managers that can speak the language.

10. Managing Global Teams
Specific Project Outsourcing
• Specific project outsourcing can be split into two
separate categories:
➢ Product development
❖ Can require a lot of day-to-day management.
❖ Might be managing local and outsource
employees
➢ Outsourced services
❖ Services outsourced for a specific project that is
not ongoing work are generally self-contained.
❖ Do not require the level of management needed
for a product development project.

11. Managing Global Teams
Ongoing Business-Function Outsourcing
• Ongoing business-function outsourcing can be split
into two separate categories:
➢ Product development
❖ Can require a lot of initial setup time.
❖ Needs to have strong customer/vendor
relationships.
➢ Outsourced services
❖ Need more ongoing management, but work
tends to be straightforward.
❖ Customer support services will require some
level of reporting back to management.

12. Managing Global Teams
Building Relationships with Outsource Vendor Managers
• It is important to build strong working relationships with
the vendor project manager.
• Set up a process for daily or weekly reporting from the
project manager.
• Invite outsource managers to team days with your
team members.
• Communicate informally every now and then.
• Learn what styles and cultural differences the
outsource managers may have.

13. Managing Global Teams
Importance of the Statement of Work and Outsourcing
Contract
• Carefully document the work being contracted by the
outside company.
• The statement of work (SOW) defines the work tasks
and deliverables.
• The SOW should be very clear, concise, and
unambiguous.
• It is important to understand the laws in that country.
• Anything in the contract that is out of compliance with
a country’s laws will not be enforceable.

14. Managing Global Teams
Importance of the Statement of Work and Outsourcing
Contract
• Important elements of the SOW are:
➢ Introduction
➢ Objectives
➢ Project Scope
➢ Period of Contract
➢ Specific Tasks
➢ Schedule of Deliverables
➢ Completion Criteria
➢ Fees and Payments
➢ Roles and Responsibilities
➢ Assumptions and Constraints
➢ Staffing
➢ General Provisions