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Chapter 15

Chapter 15. Outsourcing. Learning Outcomes. Describe the advantages and disadvantages of insourcing, outsourcing, and offshore outsourcing

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Chapter 15

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  1. Chapter 15 Outsourcing

  2. Learning Outcomes • Describe the advantages and disadvantages of insourcing, outsourcing, and offshore outsourcing • Outsourcing can give the right combination of people, processes, and technology to operate efficiently and effectively in the global marketplace without burdening time and budget • Developing strategic outsourcing partnerships is increasingly becoming the strategic choice of companies looking to achieve cost reductions while improving their service quality, increasing shareholder value, and focusing on their core business capabilities

  3. Overview This chapter focuses on businesses’ need to undertake every effort to re-think and re-adopt new processes, especially the prospective resources regarding: • Insourcing • Outsourcing • Offshore outsourcing

  4. Insourcing • Insourcing– a common approach using the professional expertise within an organization to develop and maintain the organization's information technology systems

  5. Outsourcing • Outsourcing– an arrangement by which one organization provides a service or services for another organization that chooses not to perform them in-house

  6. Benefits from Outsourcing • Financial savings • Increased technical abilities • Market agility

  7. Factors driving outsourcing growth • Core competencies • Rapid growth • Industry changes • The Internet

  8. Developing Strategic Outsourcing Partnerships • Business process outsourcing (BPO) – contracting of a specific business task, such as payroll, to a third-party service provider • BPO is divided into two categories: • Back-office outsourcing • Front-office outsourcing

  9. Offshore Outsourcing • Offshore outsourcing – using organizations from developing countries to write code and develop systems • According to Forrester Research, nearly half of all businesses use offshore providers, and two-thirds plan to send work overseas in the near future

  10. Opening Case Study Questions • Explain the driving forces behind Amazon.com’s need to keep all IT development and systems in-house • Identify which business process Amazon.com could or perhaps shouldoutsource • Discuss the pitfalls Amazon.com would encounter if it decided to outsource its IT department

  11. IBM with Pearson • IBM signed an outsourcing arrangement with Pearson, a leading provider of financial and business news, to provide the company with managed operations services for its mainframe and server environment • As a result of the relationship with IBM, more than 70 Pearson employees will join IBM to support Pearson’s data center operations

  12. IBM with Pearson • Summarize a few reasons why Pearson did not use an insourcing approach for its IT needs • What are some of the advantages that IBM can offer Pearson as a result of outsourcing many of its critical business functions? • Explain the advantages of forming an outsourcing relationship with an international company, such as IBM has with Pearson

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